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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 333-56365
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MJD COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 13-3725229
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
521 EAST MOREHEAD STREET, SUITE 250 28202
CHARLOTTE, NORTH CAROLINA (Zip Code)
(Address of Principal Executive Offices)
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Registrant's Telephone Number, Including Area Code: (704) 344-8150.
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of March 15, 2000, the registrant had outstanding 11,522,508 shares of
Class A Common Stock, 12,543,728 shares of Class B Common Stock and 4,269,440
shares of Class C Common Stock. None of the shares of Class A Common Stock or
Class B Common Stock was held by non-affiliates. All of the shares of Class C
Common Stock were held by non-affiliates and the Company estimates the market
value of such shares as of March 15, 2000 was approximately $56 million.
MJD COMMUNICATIONS, INC. ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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ITEM PAGE
NUMBER NUMBER
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Index....................................................... 2
PART I
1. Business.................................................... 3
2. Properties.................................................. 9
3. Legal Proceedings........................................... 9
4. Submission of Matters to a Vote of Security Holders......... 9
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 10
6. Selected Financial Data..................................... 10
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 20
8. Financial Statements and Supplementary Data................. 22
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 56
PART III
10. Directors and Executive Officers of the Registrant.......... 56
11. Executive Compensation...................................... 58
12. Security Ownership and Beneficial Management................ 62
13. Certain Relationships and Related Transactions.............. 63
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8K.......................................................... 66
Independent Auditors Report and Schedule.................... 66
Signatures.................................................. S-2
Exhibit Index
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
MJD Communications, Inc. ("MJD" or the "Company") is a rapidly growing
facilities-based integrated communications provider ("ICP") offering a suite of
bundled voice and data products to small to medium-sized business subscribers in
ex-urban markets (generally markets with populations of less than 100,000) and
predominantly residential subscribers in its rural markets. The Company is
seeking to position itself as a leading single source provider of voice
services, including local services, intra and inter-state access services, long
distance services and other voice communications services and data product
offerings, such as Internet access and digital subscriber line ("DSL") services,
to meet the growing demand for broadband services. The Company is continually
evaluating new product offerings, particularly with an emphasis on emerging data
services such as IP Centrex, managed services, e-commerce hosting, application
hosting and community portals. MJD believes it is executing a capital efficient
ICP business strategy by leveraging the switching infrastructure at its acquired
rural local exchange carriers ("RLEC") to edge out into new markets in proximity
to areas served by its RLECs. As of December 31, 1999, the Company was providing
service to over 190,000 access lines located in thirteen states throughout the
United States.
The Company was formed in 1991 to seek consolidation opportunities in the
RLEC market. The Company's senior management team has demonstrated its ability
to successfully acquire, integrate and operate RLECs and to expand its business
through its ICP business strategy. A key component of the Company's ICP business
strategy is to edge out into tier four and select tier three markets that are
within a 200 mile radius of areas served by its RLECs. MJD intends to seek and
acquire strategically located RLECs that will enable the Company to be an early
entrant in its target markets. By leveraging its existing RLEC switching
infrastructure, the Company believes it is deploying a highly capital efficient
network infrastructure that will support present and future broadband data and
voice services.
The Company launched its ICP business strategy in April 1998 thorough its
wholly-owned competitive local exchange carrier ("CLEC") subisidiary, FairPoint
Communications Corp. ("FairPoint"), and as of December 31, 1998, served
approximately 10,000 access lines in 10 markets. As of March 1, 2000, FairPoint
had entered an additional 121 markets, increasing the total number of markets
served to 131. As of March 1, 2000, FairPoint had provisioned an additional
41,000 access lines resulting in a total of approximately 51,000 access lines
located in the Northeast and Pacific Northwest region of the United States. The
Company intends to serve over 220 markets by December 31, 2000, including
markets in the Southeast and Southwestern regions and to increase the number of
access lines served by FairPoint to approximately 140,000 access lines. Since
1993, the Company has acquired 24 RLECs located in twelve states and as of
December 31, 1999, served over 150,000 access lines. The Company has announced
two pending acquisitions strategically located in the southeastern United States
that will increase the number of RLEC access lines served to approximately
210,000. The Company believes these two strategic RLEC acquisitions and future
RLEC acquisitions will facilitate continued ICP growth.
The Company believes it has identified a market opportunity in under-served
markets in tier four and select tier three tier markets. There are approximately
930 of these markets representing approximately 7.7 million business lines and
telecommunications spending of approximately $11.1 billion. By leveraging its
RLEC platform and entering these largely under-served markets, the Company
believes it can successfully compete against the incumbent local exchange
carrier ("ILEC") for voice services and continually evolve its ICP strategy to
drive additional market penetration and revenues. The Company's ICP business
strategy is to enter new markets on either an unbundled network element platform
("UNE-P") or resale basis. Once the Company has achieved sufficient market share
to justify the required capital investment, the Company will migrate its
customers to its own facilities-based services ("on-switch") by co-locating in
the ILEC's central office. This capital efficient strategy, together with the
Company's ability to leverage the RLEC switching infrastructure, allows the
Company to enter new markets and, following the co-location process, to
efficiently route its customer traffic back through its RLEC network and host
switching facility.
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As of March 1, 2000, the Company had completed co-locations in 12 markets and
expects to complete approximately additional 120 co-locations by December 31,
2000. The Company's co-located facilities include installation of both data and
voice network equipment. The Company's central office host remote sites have
advanced digital switches which allow the Company to provide advanced voice and
data services. Currently, the Company has deployed DSL technology in 15 of its
central offices. The Company is designing and expects to deploy an advanced
packet switching network and pursue voice over Internet protocol/voice telephony
over asynchronous transfer mode ("VOIP/VTOA") architecture to augment its RLEC
switching platform.
After giving effect to the conversion of the Company's Class B Common Stock
and Series D Preferred Stock (which will occur automatically upon the receipt of
all required regulatory approvals, the ("Conversion") as described herein,
senior management of the Company owned approximately 22.6% of the Class A Common
Stock of the Company on a fully diluted basis as of March 15, 2000.
RECENT DEVELOPMENTS
The Company has entered into a Stock Purchase Agreement dated as of December
23, 1999 to acquire TPG Communications, Inc. for approximately $210.0 million.
This company serves approximately 52,000 access lines located primarily in the
Florida panhandle region. The Company also has entered into a Stock Purchase
Agreement dated as of December 10, 1999, with Peoples Mutual Telephone Company
and certain other parties to acquire an RLEC for approximately $35.0 million.
This company serves approximately 7,600 access lines in Central Virginia. These
acquisitions (the "Pending Acquisitions") are expected to close during the
second quarter of 2000 and represent platforms which the Company will use to
expand its CLEC activities into the Southeast.
In January 2000, the Company completed an equity financing and
recapitalization (the "Equity Financing") pursuant to which (i) investment
partnerships and other parties affiliated with or related to Thomas H. Lee
Equity Fund IV, L.P. (collectively "THL"), investment partnerships affiliated
with Kelso & Company ("Kelso" and collectively with THL, the "Equity
Investors"), certain other institutional investors and members of management
acquired equity interests in the Company, and (ii) Carousel Capital Partners,
L.P. ("Carousel") sold all of its equity interests in the Company. The net cash
proceeds of approximately $159.3 million to the Company from the Equity
Financing have been and are expected to be used to repay certain amounts
outstanding under the Company's revolving credit facilities and to fund the
Company's Pending Acquisitions and its CLEC strategy. After giving effect to the
Conversion, THL and Kelso owned, as of March 15, 2000, approximately 37.8% and
32.1%, respectively, of the Class A Common Stock on a fully diluted basis. The
Equity Investors have invested an aggregate of approximately $375.5 million of
equity capital in MJD. The Company believes it benefits from the Equity
Investors' financial and management expertise and financial support.
INDUSTRY OVERVIEW
The Telecommunications industry is experiencing rapid growth driven by
deregulation and new technologies facilitating an increase in the number and
functionality of voice, data and broadband product offerings.
The emergence of CLECs has been promoted by Congress through the
Telecommunications Act of 1996, as amended (the "Telecommunications Act"), and
furthered by federal and state regulatory policies. The Telecommunications Act
and subsequent regulatory policy have provided CLECs with access to the ILEC's
infrastructure and, most importantly, an ability to reach the end user.
Legislation and regulatory policy, technological advances and increased demand
for broadband product offerings and bundled services have been the primary
drivers behind the growth of the CLEC sector.
The ILEC industry is recognized by the Federal Communications Commission
("FCC") as consisting of a few large non-rural carriers such as the regional
bell operating companies ("RBOCs") and rural carriers that are generally small
independently owned companies or RLECs.
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COMPETITIVE LOCAL EXCHANGE CARRIER INDUSTRY. The Telecommunications Act
enabled the creation Local market or long-distance of the CLEC industry by
facilitating competition in the local exchange for the end user's communications
business. It is estimated that the total U.S. communications market approximates
$240 billion, annually. Currently, industry analysts estimate that CLECs have
less than a five percent of that market share.
RURAL TELEPHONE INDUSTRY. The FCC estimates that RLECs serve approximately
eight percent of the nation's access lines and 38% of the US land area. The
average population density for areas served by RLECs is 13 persons per square
mile, compared to 105 persons per square mile for non-rural carriers. RLECs
serve approximately 19 access lines per square mile while non-rural carriers
serve 128 access lines per square mile.
According to United States Telecom Association data, there are approximately
1,200 independent telephone companies in the U.S., each of which serves less
than 25,000 access lines. Generally, these small, privately held telephone
companies operate in sparsely populated rural areas where competition from other
providers (wireline or wireless) is limited because of the generally unfavorable
economics of constructing and operating such competitive systems in rural areas.
The Company believes that many of these RLEC owners are increasingly interested
in selling their businesses as the growing technical, administrative and
regulatory complexities of the local telephone business challenge their existing
management capabilities. Also, certain large telephone companies are selling
many of their small rural exchanges to focus their attention on their major
metropolitan operations, which generate the greatest percentage of their
consolidated revenue and which are increasingly threatened by competition. The
Company believes the large companies will not continue to invest time and
capital in their rural operations, which represent a relatively insignificant
portion of their consolidated operations. Under these circumstances, the Company
believes that it will continue to have opportunities to acquire RLECs and rural
telephone operations currently owned by the large telephone companies which will
allow the Company to accelerate the growth of the CLEC business.
SERVICES
The Company is continually investing in its telecommunications network to
ensure that it is and will be capable of meeting the growing demand for advanced
voice and data communications services from its customers. These investments
include deployment of technology that maintains the traditional suite of
products, but also provides for broadband services by transitioning from a
circuit-switched to a packet-switched network. The Company believes it is able
to efficiently and reliably provide all of the telecommunications services
required by its customers, thereby enhancing the Company's ability to build upon
its recognized local brand identity within each of its markets.
The Company offers a bundled approach to its voice and data product
offerings.
Voice services include basic local service, intrastate and interstate
access, Centrex, enhanced calling features, long distance and other services
such as dedicated or private line, cable television services and wireless
telephony. Data products include full service Internet, dial up Internet access,
DSL or high-speed data connectivity services, frame relay/ATM and web hosting.
DSL is a technology enabling high-speed data access across existing telephone
lines.
The Company is continually evaluating new product offerings and is currently
developing IP Centrex, managed services, e-commerce hosting, application hosting
and community portals.
GENERATION OF REVENUE
The Company generates revenue primarily through: (i) the provision of local
telephone service to small to medium sized business and residential subscribers
that include: dial tone, ISDN, Centrex, private lines, and switched data
services; (ii) the provision of data services which include Internet access, DSL
(which provides high-speed connection to the Internet or other broadband
services over existing copper lines while simultaneously providing for
traditional voice dial up service.) and frame relay/asynchronous
5
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transfer mode network; (iii) the provision of network access to IXCs for
origination and termination of interstate and intrastate long distance calls;
(iv) in the case of the RLECs, Universal Service Support Fund payments that
supplement the RLECs high-cost of providing basic local service; and (v) the
provision of ancillary services such as billing and collection, long distance
resale, enhanced services, wireless services, cable television services, and
customer premises equipment sales.
SALES AND MARKETING
The Company's marketing approach emphasizes locally managed,
customer-oriented sales, marketing and service. The Company's objective is to
differentiate itself from its competitors by providing superior product and
customer support services in its markets.
The Company had 565 employees engaged in sales, marketing and customer
service at December 31, 1999. The Company targets business, government, and
institutional customers in tier four and select tier three markets and to its
predominantly residential RLEC customers by offering complete voice and data
solutions to meet its customers' communications needs.
COMPETITION
The Company believes that the Telecommunications Act and other recent
actions taken by the FCC and state regulatory authorities promote competition in
the provision of telecommunications services.
The Company is pursuing the opportunity to be the preferred
telecommunications provider of choice in the markets in which the Company
operates. The Company is executing a "first to market" strategy in ex-urban or
fourth and select third tier markets in proximity to the Company's RLEC markets.
The Company believes its targeted ex-urban markets will support only one or two
competitors in addition to the ILEC and, as a result, believes it is important
to be an early entrant in each of its markets. The Company has successfully
attracted and retained its customers through high quality customer service and
comprehensive voice and data product offerings. The Company believes that its
success-based, capital efficient business plan will provide a competitive
advantage in its markets.
The Company intends to pursue the acquisition of RLECs that are
strategically located and accelerate the capital efficient expansion of its ICP
business. The Company expects that there will be increased competition for
suitable acquisition candidates from other competitors engaged in the
acquisition of RLECs. There are approximately 1,200 small independent companies,
many of which may be suitable acquisition candidates. However, a continuing
trend toward business combinations and alliances in the telecommunications
industry may increase competition for such acquisition candidates.
NETWORK FACILITIES
The Company is designing and expects to deploy an advanced packet switching
network and to pursue VOIP/VTOA (voice over Internet protocol/voice telephony
over ATM) architecture to augment the RLEC host switches. The Company believes
this packet switched architecture will allow it to efficiently deliver
integrated voice and data services to its customers at a lower cost than
traditional circuit switched architecture. The Company expects to continue to
leverage use of the RLEC switches and technical personnel as it deploys its
network. The Company expects to continue co-locating remote switching facilities
in the incumbent RBOC central office with the traffic then transported to the
existing RLEC host switch. In some cases, the Company will build stand-alone
switches in markets where transport costs back to the RLECs are unusually high,
but in most cases the current host-remote network structure is utilized.
DSL-enabled integrated access technology is being deployed in all central office
co-locations to minimize the last-mile local loop expense, as well as to provide
significant broadband capacity to the Company's customers. The Company assembles
a long-haul network at low cost through dark fiber purchases, UNE leases,
selected builds and strategic partnerships. This provides lower-cost transport
for the host-remote links, lower the cost of long distance transport and enable
the company to continue the growth of its long distance wholesale operation.
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As of December 31, 1999, (i) the Company's RLEC franchise areas included 108
exchanges serving approximately 150,000 access lines that were located across
approximately 13,100 square miles and (ii) the Company maintained over 14,700
miles of copper plant and 1,200 miles of fiber optic plant that interconnect the
Company's remote central offices with IXCs serving the Company's subscribers.
Upon completion of the Pending Acquisitions, the Company's RLECs franchise area
will include 131 exchanges serving approximately 210,000 access lines. The
Company's central office host and remote sites have advanced digital switches
manufactured by Nortel or Siemens and current generic software which allows the
Company to provide advanced calling features, products and services to its
subscribers. The outside plant consists of transport and distribution delivery
networks connecting the Company's host central office with remote central
offices and ultimately with 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 and other
RLECs. Where topography and geography permit, cable is generally buried,
reducing the risk of service interruption from adverse weather.
The Company's fiber optic transport systems are primarily synchronous
optical networks ("SONET"). This type of network allows the Company to build and
design more durable networks, while utilizing the less durable asynchronous
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.
The Company has integrated numerous elements of its network to offer a
variety of services and applications that meet increasingly sophisticated rural
communications customers. These network elements include SS7 signaling networks,
voice-messaging platforms, DSL capability , and numerous customer located key
and PBX systems. As the telecommunications industry is subject to rapid and
significant changes in technology, customer demand and competitive pressures,
the Company endeavors to introduce additional elements of functionality to its
network, including frame relay and ATM switches, local number portability, AIN
services, and VOIP opportunities.
The Company has been segmenting its 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 the intelligence and unencumbered
capabilities of 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 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.
EMPLOYEES
As of December 31, 1999, the Company employed a total of 947 full-time
employees of which 83 employees are 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
subsidiary, Chautauqua & Erie Telephone Corp., in New York; and (iii) Local 166
of the International Brotherhood Electrical Workers (AFL-CIO), covering 61
employees employed by its Taconic Telephone Corp. subsidiary in New York. The
contracts expire in February 2002, January 2003 and March 2000, respectively.
The Company is currently in final negotiation on the renewal of the March 2000
contract. The Company cannot predict whether agreement will be reached with the
union on such contract.
The Company believes the state of its relationship with its employees to be
good.
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ITEM 2. PROPERTIES
The Company either leases or owns its administrative offices and generally
owns its maintenance facilities, rolling stock, co-location equipment, central
office and remote switching platforms and outside plant. Administrative and
maintenance facilities are generally located in or near community centers. Co-
location equipment is located in leased space in the incumbent local exchange
carrier's central office. 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.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of MJD during
the fourth quarter of the fiscal year.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no established public market for the common equity of the Company.
Substantially all of the Company's outstanding common equity securities are
owned by Kelso, certain institutional investors and the Company's executive
officers and directors. THL owns all of the Company's outstanding preferred
equity.
There were 5,359,860 options to purchase shares of Class A Common Stock
outstanding as of March 15, 2000, of which 592,460 were fully vested. Upon
receipt of all required regulatory approvals, all of the outstanding shares of
Class B Common Stock and Series D Preferred Stock will be automatically
converted into an equal number of shares of Class A Common Stock.
There are no shares of common stock that could be sold pursuant to Rule 144
under the Securities Act or, other than pursuant to the Registration Rights
Agreement (as defined herein), that MJD has agreed to register under the
Securities Act for sale by the security holders.
There are no shares that are being, or have been publicly proposed to be,
publicly offered by MJD in which such offering could have a material effect on
the market price of MJD's common equity.
The ability of the Company to pay dividends is governed by restrictive
covenants contained in the indenture governing its publicly held debt as well as
restrictive covenants in the Company's bank lending arrangement. The Company has
never paid cash dividends on its equity securities and currently has no
intention of paying cash dividends on its equity securities for the foreseeable
future.
On January 20, 2000, the Company declared a stock split in the form of a
stock dividend of 19 shares for each share of capital stock held of record as of
January 31, 2000 (the "Stock Split"). All share numbers and purchase price
amounts disclosed herein have been adjusted to give effect to this stock
dividend.
ITEM 6. SELECTED FINANCIAL DATA
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" for, and as of the end of, each of the
years in the five-year period ended December 31, 1999, are derived from the
consolidated financial statements of MJD Communications, Inc. and its
subsidiaries, which have been audited by KPMG LLP, independent certified public
accountants. Dollar amounts are presented in thousands.
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ACTUAL
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YEAR ENDED DECEMBER 31,
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1999 1998 1997 1996 1995
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(DOLLARS IN THOUSANDS)
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STATEMENT OF OPERATIONS DATA:
Operating revenues:
Switched services......................... $108,430 $ 72,124 $39,257 $27,973 $22,763
Resold services........................... 22,323 7,803 4,531 100 --
Other..................................... 16,786 12,080 3,975 2,283 1,986
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Total operating revenues.................... 147,539 92,007 47,763 30,356 24,749
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Operating expenses:
Plant operations.......................... 21,088 14,293 6,857 4,181 3,746
Corporate and customer service............ 54,901 27,635 12,483 7,577 6,433
Depreciation and amortization............. 31,632 20,089 8,777 6,644 5,757
Cost of services resold................... 19,190 6,163 4,791 97 --
Other..................................... 9,028 7,265 2,416 1,658 1,407
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ACTUAL
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YEAR ENDED DECEMBER 31,
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1999 1998 1997 1996 1995
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(DOLLARS IN THOUSANDS)
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Total operating expenses.................... 135,839 75,445 35,324 20,157 17,343
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Income from operations...................... 11,700 16,562 12,439 10,198 7,406
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Other income (expense):
Net gain (loss) on sale of investments and
other assets............................ 512 651 (19) (3) (30)
Interest income........................... 446 442 212 180 225
Dividend income........................... 1,452 1,119 1,182 667 664
Interest expense.......................... (51,185) (27,170) (9,293) (9,605) (7,267)
Other, net................................ 2,520 885 140 (15) 33
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Total other expense......................... (46,255) (24,073) (7,778) (8,776) (6,375)
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Earnings (loss) before income taxes and
extraordinary item........................ (34,555) (7,511) 4,661 1,423 1,031
Income tax (expense) benefit................ 5,615 2,112 (1,876) (1,462) (547)
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Earnings (loss) before extraordinary item
and minority interest..................... (28,940) (5,399) 2,785 (39) 484
Extraordinary item.......................... -- (2,521) (3,611) -- --
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Earnings (loss) before minority interest.... (28,940) (7,920) (826) (39) 484
Minority interest in income of
subsidiaries.............................. (100) (80) (62) (33) (6)
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Net earnings (loss)......................... $(29,040) (8,000) (888) (72) 478
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BALANCE SHEET DATA:
Cash and cash equivalents................... $ 9,923 $ 13,241 $ 6,822 $ 4,253 $ 3,672
Working capital............................. 13,880 10,778 108 596 1,026
Property, plant and equipment, net.......... 178,296 142,321 61,207 41,615 37,048
Total assets................................ 516,255 442,112 144,613 97,020 79,218
Long-term debt, net of current portion...... 458,529 364,610 131,912 73,958 64,180
Redeemable preferred stock.................. -- -- 130 10,689 6,701
Total stockholders' equity (deficit)........ (11,581) 9,886 (10,939) (2,142) 103
OTHER FINANCIAL DATA:
Adjusted EBITDA(1).......................... $ 48,162 $ 39,668 $22,669 $17,639 $14,050
Capital expenditures........................ 43,509 12,433 8,262 8,439 4,439
Ratio of earnings to fixed charges(2) (3)... -- -- 1.5x 1.1x 1.1x
SUMMARY CASH FLOW DATA:
Net cash provided by operating activities... $ 7,704 $ 14,867 $ 9,839 $ 9,772 $ 6,039
Net cash provided by (used in) investing
activities................................ (76,610) (225,522) (38,967) (19,790) (4,481)
Net cash provided by (used in) financing
activities................................ 65,588 217,074 31,697 10,599 (2,903)
OPERATING DATA:
Access lines in service..................... 190,722 136,374 48,731 34,017 28,737
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(1) Adjusted EBITDA represents net earnings (loss) plus interest expense, income
taxes, depreciation and amortization, and extraordinary items. Adjusted
EBITDA is presented because management believes it provides useful
information regarding the Company's ability to incur and/or service debt.
Management expects that investors may use this data to analyze and compare
other telecommunications companies with the Company in terms of operating
performance, leverage and liquidity. Adjusted EBITDA is not a measure of
financial performance under generally accepted accounting principles and
should not be construed as a substitute for consolidated net earnings (loss)
as a
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measure of performance, or for cash flow as a measure of liquidity. The
definition of EBITDA in the indenture governing the Notes (as defined
herein) (the "Indenture") is designed to determine EBITDA for the purposes
of contractually limiting the amount of debt which the Company may incur.
Adjusted EBITDA presented herein differs from the definition of EBITDA in
the Indenture, which excludes from the calculation of EBITDA (i) net income
of Unrestricted Subsidiaries (as defined in the Indenture) unless such net
income is actually dividended to the Company or a Restricted Subsidiary (as
defined in the Indenture) and (ii) net income of any Restricted Subsidiary
to the extent there is any restriction on the ability of such Restricted
Subsidiary to pay dividends to the Company (except that the Company's equity
in the net income of any such Restricted Subsidiary is included to the
extent of dividends actually received by the Company from such Restricted
Subsidiary). The definition of EBITDA in the Indenture is a component of the
term "Pro Forma EBITDA" in the Indenture, which is used in a financial
covenant calculation therein. Pro Forma EBITDA, as defined in the Indenture,
differs from Adjusted EBITDA primarily because it is calculated after giving
effect to cost savings the Company believes will be achieved during the
applicable period. Adjusted EBITDA as calculated by the Company is not
necessarily comparable to similarly captioned amounts of other companies.
(2) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes, minority interest, income or
loss from equity investees and extraordinary items, plus distributed income
of equity investees, amortization of capitalized interest, and 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. The
Company had a deficiency of $34.5 million and $7.5 million to cover fixed
charges in 1999 and 1998, respectively.
(3) On January 20, 2000, the Company repaid borrowings of approximately
$75.2 million under the Company's senior secured revolving credit facility
and approximately $27.1 million under FairPoint's revolving credit facility.
See note 2 to the consolidated financial statements for additional
information. Interest expense on these borrowings was approximately $1.3
million. Interest expense under the Company's revolving credit facility was
approximately $0.06 million during 1998. During 1998, FairPoint did not
incur debt; therefore there was no interest expense reported. For purposes
of calculation of the pro forma ratio of earnings to fixed charges, the net
pro forma change to interest expense of $1.3 million and $0.06 million in
1999 and 1998, respectively, was added to the Company's earnings as defined
in note (2) above. The Company had a pro forma deficiency of $33.2 million
and $7.5 million to cover fixed charges in 1999 and 1998, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
GENERAL. MJD is a rapidly growing facilities-based ICP offering a suite of
bundled voice and data products to small to medium-sized business subscribers in
ex-urban markets (generally markets with populations of less than 100,000) and
predominantly residential subscribers in its rural markets residential. The
Company is seeking to position itself as a leading single source provider of
voice services, including local services, intra and inter-state access services,
long distance services and other voice communications services, and data product
offerings, such as Internet access and DSL services, to meet the growing demand
for broadband services. MJD believes it is executing a capital efficient ICP
business strategy by leveraging the switching infrastructure at its acquired
RLECs to edge out into new markets in proximity to areas served by its RLECs. As
of December 31, 1999, the Company was providing service to over 190,000 access
lines located in thirteen states throughout the United States.
For the year ended December 31, 1999, the Company had operating revenues and
Adjusted EBITDA (as defined in Note 1 to "Selected Financial Data") of
approximately $147.5 million and approximately $48.2 million, respectively. The
Company provided net cash of approximately $7.7 million from operating
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activities, used net cash of approximately $76.6 million in investing activities
and provided net cash of approximately $65.6 million from financing activities
for the year ended December 31, 1999.
The growth realized by the Company through its ICP business strategy is
supported by the stable growth and cash flow from its RLECs that typifies the
stable economic and demographic characteristics of the RLECs rural markets.
Historically, the primary reason for the Company's growth in revenue and cash
flow has been the acquisition of additional RLECs. In the future, the Company
believes FairPoint's growth will have an increasing impact on the Company's
results of operations, the Company expects that its rate of growth will
accelerate and its results of operations will be impacted by the negative cash
flow to be reported by FairPoint during the market expansion phase of its ICP
business plan.
OPERATING REVENUES: The Company generates revenue primarily through: (i) the
provision of 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 telephone calls; and (iii) the provision
of other services such as billing and collection, long distance resale, enhanced
services, wireless services, cable television services, Internet access services
and customer premises equipment sales; and (iv) FairPoint's operations. The
revenues listed in clauses (i) and (ii) above are classified by the Company as
"Switched services." The revenues listed in clause (iii) above are classified by
the Company as "Other revenue", except for services resold which are classified
as "Resold services". The FairPoint revenues are classified by the Company as
"Resold services".
<TABLE>
<CAPTION>
% OF REVENUE
----------------------------------
REVENUE SOURCE 1999 1998 1997
- -------------- -------- -------- --------
<S> <C> <C> <C>
Switched services..................................... 73.5% 78.4% 82.2%
Resold services....................................... 15.1% 8.5% 9.5%
Other services........................................ 11.4% 13.1% 8.3%
</TABLE>
OPERATING EXPENSES: The Company's operating expenses are categorized as plant
operations, corporate and customer service, depreciation and amortization, cost
of services resold and other general and administrative expenses. Year to year
operating expense changes are influenced by access line growth, the Company's
acquisition activity, general business inflationary adjustments and the expenses
of FairPoint. 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. Cost
of services resold are the expenses incurred to provide long distance resale by
STLD and local and long distance resale by FairPoint. Other general and
administrative expenses are expenses such as property taxes and other
miscellaneous expenses.
OTHER (INCOME) EXPENSES: The Company's other income includes interest income,
dividends, gain or loss on sale of investments and other 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
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
OPERATING REVENUES. Operating revenues increased $55.5 million to
$147.5 million in 1999 from $92.0 million in 1998 for the year ended
December 31. The 1999 Acquisitions and the acquisitions completed by the Company
in 1998 (the "1998 Acquisitions") accounted for $40.3 million of the revenue
increase while for the RLECs owned and operated for a comparable period,
operating revenues increased by $4.6 million to $61.9 million from
$57.3 million. FairPoint's operating revenues increased $10.6 million to
$11.7 million in 1999 compared to $1.1 million in 1998, as a result of the
growth of FairPoint's operations.
Basic local service revenue increased $9.1 million to $26.8 million in 1999
from $17.7 million in 1998 for the year ended December 31. This revenue increase
is primarily attributable to an increase in access
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<PAGE>
lines from internal growth and access lines acquired in the 1999 Acquisitions
and the 1998 Acquisitions. The 1999 Acquisitions and the 1998 Acquisitions
accounted for 96,523 access lines, or 64%, the total RLEC access lines operated
by the Company at December 31, 1999. The RLECs owned and operated by the Company
for the comparable periods achieved internal growth of 3,103 access lines. The
1999 Acquisitions and the 1998 Acquisitions contributed $8.4 million of the
increase in basic local service revenue in 1999 while the RLECs owned and
operated for a comparable period contributed $0.7 million of the increase.
USSF revenue increased $2.5 million to $7.2 million in 1999 from
$4.7 million in 1998 for the year ended December 31. The 1999 Acquisitions and
1998 Acquisitions contributed $1.6 million of the increase in USSF revenue,
while for the RLECs owned and operated for a comparable period, USSF revenues
increased by $0.9 million to $5.2 million.
Network access revenue increased $24.7 million to $74.4 million in 1999 from
$49.7 million in 1998 for the year ended December 31. This revenue increase is
primarily attributable to the increase in minutes of use contributed from
internal growth and by the 1999 Acquisitions and the 1998 Acquisitions. Network
access revenue contributed by the 1999 Acquisitions and the 1998 Acquisitions
was $22.4 million. For the RLECs owned and operated for a comparable period,
network access revenue increased by $2.3 million to $34.8 million. The increase
in network access revenues in 1999 was primarily associated with cost study true
up payments received as a result of 1998 traffic pattern shifts that resulted in
higher network access revenue.
Resold service revenue increased $14.5 million to $22.3 million in 1999 from
$7.8 million in 1998 for the year ended December 31. Revenue contributed by the
1999 Acquisitions and the 1998 Acquisitions provided $2.9 million of the
increase in resold service revenues. Long distance service resold contributed
$1.0 million. FairPoint's operations provided $10.6 million of the increase in
resold service revenue.
Other revenues increased $4.7 million to $16.8 million in 1999 from
$12.1 million in 1998 for the year ended December 31. Revenue contributed by the
1999 Acquisitions and the 1998 Acquisitions provided a $4.9 million increase in
other revenues for the year ended December 31, 1999. For the RLECs owned and
operated for the comparable period by the Company, other revenues decreased
$0.2 million to $5.1 million.
OPERATING EXPENSES. Operating expenses, which include plant operations,
corporate and customer service, depreciation and amortization, cost of services
resold and other general and administrative expenses, increased $60.4 million to
$135.8 million in 1999 from $75.4 million in 1998 for the year ended
December 31. The increase was attributable in part to operating expenses
associated with the 1999 Acquisitions and the 1998 Acquisitions, which in the
aggregate accounted for $24.3 million of the increase. In addition, for the
RLECs owned and operated for a comparable period, operating expenses increased
approximately $8.3 million, or 18.8%, to $52.4 million in 1999 from
$44.1 million in 1998. The change was primarily attributable to an increase in
corporate and customer service expenses and in cost of services resold at
FairPoint. The corporate expense increase can be attributed to approximately
$0.8 million in acquisition due diligence costs incurred as a result of
unsuccessful bids to acquire certain RLEC assets, approximately $0.8 million
associated with the buyout of an employee contract and approximately
$3.4 million in executive compensation expense related to stock appreciation
rights of certain management members. Long distance toll costs increased
$1.8 million as the number of companies that receive wholesale services from
STLD has increased. In addition, the wholesale rates in the state of Maine
increased dramatically during 1999. FairPoint's operating expenses increased
$25.9 million from $5.5 million to $31.4 million in 1999.
INCOME FROM OPERATIONS. As a result of the factors described above, income from
operations decreased $4.9 million to $11.7 million in 1999 from $16.6 million in
1998 for the year ended December 31. As a percentage of revenues, income from
operations was 7.9% as compared to 18.0% in 1999 and 1998, respectively. This
margin decline in 1999 is primarily attributable to the expenses associated with
FairPoint, an increase in corporate and customer services expenses and long
distance cost of services resold. This
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<PAGE>
trend is expected to continue for the foreseeable future as the implementation
of the FairPoint business is completed. For the RLECs owned and operated for a
comparable period, the income from operations decreased $3.7 million to
$9.5 million. The income from operations margin decreased to 15.4% from 23.1%.
This decrease was primarily attributable to an increase in corporate and
customer services expenses and the $3.4 million in executive compensation
expense related to stock appreciation rights of certain management members. The
income from operations margin for the RLECs owned and operated for a comparable
period was approximately 21% when adjusted for the $3.4 million in executive
compensation expense related to stock appreciation rights of certain management
members.
OTHER INCOME (EXPENSE). Total other expense increased $22.2 million to
$46.3 million in 1999 from $24.1 million in 1998 for the year ended
December 31. The increase was primarily attributable to an increase in interest
expense associated with the additional debt incurred to complete the 1999
Acquisitions and 1998 Acquisitions and a $13.3 million increase associated with
the retirement of certain warrants issued by our subsidiary, ST
Enterprises, Ltd. See also note 9 to the consolidated financial statements for
additional information.
EXTRAORDINARY ITEM. For the year ended December 31, 1998, the Company
recognized an extraordinary loss of $2.5 million (net of taxes) related to the
early retirement of debt.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
OPERATING REVENUES. Operating revenues increased $44.2 million to
$92.0 million in 1998 from $47.8 million in 1997 for the year ended
December 31. The 1998 Acquisitions and the acquisitions completed by the Company
in 1997 (the "1997 Acquisitions") accounted for $42.1 million of the revenue
increase while for the RLECs owned and operated for a comparable period,
operating revenues increased by $1.0 million to $43.9 million from
$42.9 million. FairPoint reported first year revenues of $1.1 million in 1998.
Basic local service revenue increased $10.1 million to $17.7 million in 1998
from $7.6 million in 1997 for the year ended December 31. This revenue increase
is primarily attributable to an increase in access lines from internal growth
and access lines acquired in the 1998 Acquisitions and the 1997 Acquisitions.
The 1998 Acquisitions accounted for 78,700 access lines, or 61% of total access
lines operated by the Company at December 31, 1998. The RLECs owned and operated
by the Company for the comparable periods achieved internal growth of 2,300
access lines. The 1998 Acquisitions and the 1997 Acquisitions contributed
$9.7 million of the increase in basic local service revenue in 1998 while the
RLECs owned and operated for a comparable period contributed $0.4 million of the
increase.
USSF revenue increased $0.4 million to $4.7 million in 1998 from
$4.3 million in 1997 for the year ended December 31. The 1998 Acquisitions and
1997 Acquisitions contributed $0.7 million of the increase in USSF revenue,
while for the RLECs owned and operated for a comparable period, USSF revenues
decreased by $0.3 million to $3.7 million
Network access revenue increased $22.4 million to $49.7 million in 1998 from
$27.3 million in 1997 for the year ended December 31. This revenue increase is
primarily attributable to the increase in minutes of use contributed from
internal growth, the 1998 Acquisitions and the 1997 Acquisitions, and an
increase in interstate and intrastate settlement revenue administered by NECA or
a respective state's settlement methodologies. Network access revenue
contributed by the 1998 Acquisitions and the 1997 Acquisitions was
$21.5 million. For the RLECs owned and operated for a comparable period, network
access revenue increased by $0.9 million to $26.0 million.
Resold service revenue increased $3.3 million to $7.8 million in 1998 from
$4.5 million in 1997 for the year ended December 31. Revenue contributed by the
1998 Acquisitions and the 1997 Acquisitions provided $1.8 million of the
increase in resold service revenues. Long distance service resold contributed
$0.4 million. FairPoint reported first year revenue of $1.1 million.
Other revenues increased $8.1 million to $12.1 million in 1998 from
$4.0 million in 1997 for the year ended December 31. Revenue contributed by the
1998 Acquisitions and the 1997 Acquisitions provided
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<PAGE>
$8.5 million in other revenues for the year ended December 31, 1998. For the
RLECs owned and operated for the comparable period by the Company, other
revenues decreased $0.4 million for the year ended December 31, 1998.
OPERATING EXPENSES. Operating expenses, which include plant operations,
corporate and customer service, depreciation and amortization, cost of services
resold and other general and administrative expenses, increased $40.1 million to
$75.4 million in 1998 from $35.3 million in 1997 for the year ended
December 31. The increase was primarily attributable to the operating expenses
associated with the 1998 Acquisitions and the 1997 Acquisitions, which in the
aggregate accounted for $31.6 million of the increase. Expenses associated with
the start up and operation of FairPoint were $5.9 million of the increase in
1998. In addition, for the RLECs owned and operated for a comparable period,
operating expenses increased approximately $2.6 million, or 8.3%, to
$34.0 million in 1998 from $31.4 million in 1997. The change was primarily
attributable to a $3.0 million increase in corporate and customer service
expenses associated with the dramatic growth experienced by the Company in 1998.
INCOME FROM OPERATIONS. As a result of the factors described above, income from
operations increased $4.2 million to $16.6 million in 1998 from $12.4 million in
1997 for the year ended December 31. As a percentage of revenues, income from
operations was 18.0% as compared to 26.0% for the years ended December 31, 1998
and 1997, respectively. This margin decline in 1998 is primarily attributable to
the expenses associated with FairPoint. For the RLECs owned and operated for a
comparable period, the income from operations decreased $1.8 million to
$9.7 million. The income from operations margin decreased to 22.4% from 26.9%.
This decrease was primarily attributable to an increase in corporate and
customer services expenses.
OTHER INCOME (EXPENSE). Total other expense increased $16.3 million to
$24.1 million in 1998 from $7.8 million in 1997 for the year ended December 31.
The increase was primarily attributable to an increase in interest expense
associated with the additional debt incurred to complete the 1998 Acquisitions.
The increase in other expenses was partially offset by a net gain from sale of
assets of $0.7 million and an increase of $0.2 million in dividend and interest
income from the Company's investments.
EXTRAORDINARY ITEM. For the year ended December 31, 1998, the Company
recognized an extraordinary loss of $2.5 million (net of taxes) related to the
early retirement of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's strategy requires significant capital resources. The Company
historically has used the proceeds from institutional and bank debt, private
equity offerings, and available cash flow to fund the Company's strategy.
The Company maintains a senior secured credit facility (the "Credit
Facility"), which within the Credit Facility is an $85.0 million reducing
revolving term facility with a remaining term of five years. This facility is
available for general corporate purposes, capital expenditures and acquisitions.
At December 31, 1999, there was an outstanding balance of approximately
$76.0 million and approximately $9.0 million was available under this revolving
term facility. On January 20, 2000, this revolving term facility was repaid from
the net cash proceeds generated from the Equity Financing and as of March 15,
2000, the Company had available under the revolving term facility
$85.0 million. Borrowings under the Credit Facility are guaranteed by the
Company's four mid-tier subsidiary companies and secured by a pledge of the
stock of certain subsidiaries. Also, the Credit Facility provides for an
additional $165.0 million Acquisition Facility. On March 14, 2000, this facility
was committed and made available to the Company to finance the Pending
Acquisitions, which are expected to be completed during the second quarter of
2000. Pursuant to the Credit Facility, the Company is required to comply with
certain financial covenants. For the year ended December 31, 1999, the Company
was in compliance with such covenants. See note 6 to the consolidated financial
statements for additional information.
15
<PAGE>
On May 5, 1998, the Company completed a public offering of debt consisting
of $125.0 million in aggregate principal amount of 9 1/2% Senior Subordinated
Notes (the "Fixed Rate Note") and $75.0 million in aggregate principal amount of
Floating Rate Callable Securities (the "Floating Rate Note"), each due in 2008
(collectively, the "Notes"). The Notes are general unsecured obligations of the
Company, subordinated in right of payment to all existing and future senior debt
of the Company and effectively subordinated to all existing and future debt and
other liabilities of the Company's subsidiaries. Interest on the Notes is
payable semi-annually.
FairPoint has and expects to continue to establish operations in additional
ex-urban markets, which is expected to result in continuing operating losses
reported by FairPoint. The Company invested equity of approximately
$4.2 million in 1998 and approximately $13.7 million in 1999 to enable FairPoint
to expand into 86 additional markets and increase the total number of CLEC
markets served by FairPoint to approximately 96. In addition, FairPoint has
invested and expects to continue to invest in telecommunications facilities to
migrate its customers to the Company's existing networks. FairPoint expects it
will require substantial funds for capital expenditures in 2000 and 2001. The
Credit Facility limits the Company's investment in its CLEC business to
(i) $5.0 million per year so long as the senior debt leverage ratio (as
calculated under the Credit Facility) exceeds 4.5x and (ii) $15.0 million per
year whenever such leverage ratio is under 4.5x.
On October 20, 1999, FairPoint closed a $100.0 million convertible senior
secured revolving credit facility (the "FairPoint Credit Facility"). On
March 27, 2000, this credit facility was increased from $100.0 million to
$165.0 million. Under the FairPoint Credit Facility, funds are available on a
revolving basis until March 2001; provided that upon receiving certain
approvals, the maturity date will be extended until October 2004. Subsequently,
all existing and future assets of FairPoint (including the stock of its
restricted subsidiaries) secure the borrowings under the FairPoint Credit
Facility. Pursuant to the terms of the FairPoint Credit Facility, FairPoint is
required to comply with certain financial covenants. Upon default of certain
covenants or non-payment at final maturity, at the lenders' option, the lender
may exchange all outstanding indebtedness plus outstanding and accrued interest
for an equal dollar amount of payment-in-kind preferred stock issued by the
Company. FairPoint has only a limited operating history and operates in a
competitive environment. In addition, FairPoint has significant capital
requirements due to the significant expenditures necessary to sell and market
its CLEC services and to purchase equipment to conduct operations. FairPoint has
relied, and is expected to continue to rely, on the Company to fund its equity
capital requirements and provide credit support for its debt financing needs.
The FairPoint Credit Facility, together with cash invested and to be invested by
the Company, is expected to fund FairPoint's current business plan through the
first quarter of 2001. At December 31, 1999, there was an outstanding balance of
approximately $21.7 million under the FairPoint Credit Facility, which was
subsequently retired from proceeds received from the Equity Financing as
discussed below. For the year ended December 31, 1999, the Company was in
compliance with the covenants set forth in the FairPoint Credit Facility. See
Note 6 to the consolidated financial statements for additional information.
On January 20, 2000, in connection with the Equity Financing, THL purchased
a total of 21,461,720 shares of the Company's Series D Preferred Stock for an
aggregate purchase price of approximately $281.5 million. THL acquired 3,580,860
shares of Series D Preferred Stock from the Company for an aggregate purchase
price of approximately $47.0 million, 13,955,760 shares of Series D Preferred
Stock (representing all of Carousel's equity interest in the Company) from
Carousel for an aggregate purchase price of approximately $183.0 million and
3,925,100 shares of Series D Preferred Stock from the founding stockholders and
members of senior management for an aggregate purchase price of approximately
$51.5 million. All of the shares of Series D Preferred Stock sold by Carousel
and senior management to THL and a portion of the shares of Series D Preferred
Stock sold by the founding stockholders to THL were acquired from the Company in
exchange for an equal number of shares of Class A Common Stock. The remaining
shares of Series D Preferred Stock sold by the founding stockholders to THL were
acquired from Kelso as described below.
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<PAGE>
Kelso acquired 4,243,728 shares of the Company's Class B Common Stock for an
aggregate purchase price of approximately $55.7 million and 1,093,060 shares of
Series D Preferred Stock for an aggregate purchase price of approximately
$14.3 million. Kelso assigned the shares of Series D Preferred Stock to the
founding stockholders in satisfaction of certain obligations to such
stockholders under the Company's previous stockholders agreement. Kelso also
exchanged 8,300,000 shares of Class A Common Stock for an equal number of shares
of Class B Common Stock.
Both the Series D Preferred Stock and the Class B Common Stock will
automatically convert into an equal number of shares of Class A Common Stock
upon receipt of all required regulatory approvals. In addition, as part of this
Equity Financing, the Company sold 4,269,440 shares of non-voting Class C Common
Stock to certain institutional investors for an aggregate purchase price of
approximately $56.0 million.
On January 31, 2000, the Company completed the Equity Financing by selling
100,160 shares of Class A Common Stock to certain members of the Company's
management for an aggregate purchase price of approximately $1.3 million.
The net cash proceeds to the Company from the Equity Financing of
approximately $159.3 million have been and will be used to repay long term debt,
to fund the expansion of FairPoint's CLEC business and to complete the Pending
Acquisitions.
The Company's principal liquidity requirements are expected to be for
capital expenditures, expansion of FairPoint's CLEC business, finance the
Company's pending and future acquisition activities, debt service and general
corporate purposes.
Net cash provided by operating activities was $7.7 million and
$14.9 million for the years ended December 31, 1999 and 1998, respectively. Net
cash used in investing activities was $76.6 million and $225.5 million for the
years ended December 31, 1999 and 1998, respectively. These cash flows primarily
reflect expenditures relating to RLEC acquisitions of $53.9 million and
$217.1 million for the years ended December 31, 1999 and 1998, respectively, and
capital expenditures of $43.5 million and $12.4 million for the years ended
December 31, 1999 and 1998, respectively. Net cash provided by financing
activities was $65.6 and $217.1 million for the years ended December 31, 1999
and 1998, respectively. These cash flows primarily represent borrowings, the
proceeds of which were $138.9 million in 1999 and $510.6 million in 1998, and
the proceeds from the issuance of common stock of $31.8 million in 1998. There
was no common stock issued in 1999. A majority of the proceeds received in 1999
were used to repay long-term debt of $52.1 million and to complete the 1999
Acquisitions. A majority of the proceeds received in 1998 were utilized to repay
long-term debt of $307.8 million and to complete the 1998 Acquisitions.
Net cash provided by operating activities was $14.9 million and
$9.8 million for the years ended December 31, 1998 and 1997, respectively. Net
cash used in investing activities was $225.5 million and $39.0 million for the
years ended December 31, 1998 and 1997, respectively. These cash flows primarily
reflect expenditures relating to acquisitions of RLECs of $217.1 million and
$30.8 million for the years ended December 31, 1998 and 1997, respectively, and
capital expenditures of $12.4 million and $8.3 million for the years ended
December 31, 1998 and 1997, respectively. Net cash provided by financing
activities was $217.1 million and $31.7 million for the years ended
December 31, 1998 and 1997, respectively. These cash flows primarily represent
borrowings, the proceeds of which were $510.6 million in 1998 and $71.1 million
in 1997, and from the proceeds of the issuance of common stock of $31.8 million
and $15.9 million in 1998 and 1997, respectively. A majority of the proceeds
received in 1997 were utilized to repay long-term debt of $22.1 million and to
repurchase preferred stock and warrants for an aggregate amount of
$31.5 million.
Adjusted EBITDA represents net earnings (loss) plus interest expense, income
taxes, depreciation, amortization, and extraordinary items.
Adjusted EBITDA is not a measure of financial performance under generally
accepted accounting principles and should not be construed as a substitute for
consolidated net earnings (loss) as a measure of
17
<PAGE>
performance or as a substitute for cash flow as a measure of liquidity. Adjusted
EBITDA presented herein differs from the definition of EBITDA in the Indenture.
The definition of EBITDA in the Indenture is designed to determine EBITDA for
the purposes of contractually limiting the amount of debt which the Company may
incur. Adjusted EBITDA as calculated by the Company is not necessarily
comparable to similarly captioned amounts of other companies.
Management believes Adjusted EBITDA provides useful information regarding
the Company's ability to incur and/or service debt. Increases or decreases in
Adjusted EBITDA may indicate improvements or decreases, respectively, in the
Company's free cash flows available to incur and/or service debt and cover fixed
charges. Management expects that, because Adjusted EBITDA is commonly used in
the telecommunications industry as a measure of performance, investors may use
this data to analyze and compare other telecommunications companies with the
Company in terms of operating performance, leverage and liquidity.
Adjusted EBITDA increased 21.4% to $48.2 million for the year ended
December 31, 1999 from $39.7 million for the year ended December 31, 1998.
Adjusted EBITDA reported by the RLECs was $69.0 million, by STLD was $(0.9)
million and by FairPoint was $(19.9) million for the year ended December 31,
1999. Adjusted EBITDA increased 74.9% from $22.7 million in the year ended
December 31, 1997 to $39.7 million in the year ended December 31, 1998. Adjusted
EBITDA reported by the RLECs was $44.6 million, by STLD was $(0.3) million and
by FairPoint was $(4.6) million for the year ended December 31, 1998. Adjusted
EBITDA reported by the RLECs was $24.1 million and by STLD was $(1.4) million
for the year ended December 31, 1997.
The Company may secure additional funding through the sale of public or
private debt and/or equity securities or enter into another bank credit facility
to fund future acquisitions and operations. 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 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS 137
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133", delays the effective date of this
statement to all fiscal years beginning after June 15, 2000. The Company
anticipates adopting this accounting pronouncement in 2001; however, management
believes it will not have a significant impact on the Company's consolidated
financial statements.
INFLATION
The Company does not believe inflation has a significant effect on its
operations.
YEAR 2000
The Company did not experience significant disruptions in its operations as
a result of the Year 2000 issue.
18
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to material future earnings or cash flow
exposures from changes in interest rates on long-term debt, since approximately
82% of the Company's debt is at fixed rates or effectively at fixed rates
through the use of interest rate swaps. At December 31, 1999, 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, 1999, the Company had
long-term debt with a carrying value of approximately $462.4 million and
estimated fair value of approximately $447.6 million. The market risk is
estimated as the potential decrease in fair value of the Company's long-term
debt resulting from a hypothetical increase of 91.9 basis points in interest
rates (ten percent of the rates currently offered to the Company). An increase
of 10% in interest rates would result in approximately a $0.9 million decrease
in the fair value of the Company's long-term debt.
The Company has entered into interest rate swaps to manage its exposure to
fluctuations in interest rates of its variable rate debt. The fair value of
these swaps was approximately $1.0 million at December 31, 1999. The positive
fair value indicates an estimated amount the Company would be paid to cancel the
contracts or transfer them to other parties. In connection with the Credit
Facility, the Company used an interest rate swap agreement with a notional
amount of $25 million to effectively convert a portion of its variable interest
rate exposure to a fixed rate of 9.91%. The swap agreement expires on
September 29, 2000. In connection with the Floating Rate Notes, the Company used
two interest rate swap agreements, with notional amounts of $50 million and
$25 million, respectively, to effectively convert its variable interest rate
exposure to a fixed rate of 10.01% and 9.95%, respectively. The swap agreements
expire on November 1, 2001 and 2000, respectively.
19
<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, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity (deficit),
comprehensive loss and cash flows for each of the years in the three-year period
ended December 31, 1999. 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 consolidated 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
consolidated 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, 1999 and 1998 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
March 1, 2000, except as to the fourth
and twelfth paragraphs of note 6
which are as of March 27, 2000
Lincoln, Nebraska
20
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998,
INCLUDING UNAUDITED PRO FORMA INFORMATION
AS OF DECEMBER 31, 1999 (SEE NOTE 2)
<TABLE>
<CAPTION>
PRO FORMA
1999
(SEE NOTE 2) 1999 1998
------------ -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 72,200 9,923 13,241
Accounts receivable, net of allowance for doubtful
accounts of $921 in 1999 and $704 in 1998............... 25,658 25,658 19,112
Prepaid and other assets.................................. 4,039 4,039 3,283
Investments available-for-sale............................ 7,327 7,327 --
Income taxes recoverable.................................. 1,453 1,453 --
Deferred income taxes..................................... -- -- 1,221
-------- ------- -------
Total current assets.................................... 110,677 48,400 36,857
-------- ------- -------
Property, plant, and equipment, net......................... 178,296 178,296 142,321
-------- ------- -------
Other assets:
Investments............................................... 36,246 36,246 37,894
Goodwill, net of accumulated amortization................. 229,389 229,389 203,867
Debt issue costs, net of accumulated amortization......... 17,948 17,948 16,121
Covenants not to compete, net of accumulated
amortization............................................ 3,706 3,706 2,938
Other..................................................... 2,270 2,270 2,114
-------- ------- -------
Total other assets...................................... 289,559 289,559 262,934
-------- ------- -------
Total assets............................................ $578,532 516,255 442,112
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998,
INCLUDING UNAUDITED PRO FORMA INFORMATION
AS OF DECEMBER 31, 1999 (SEE NOTE 2)
<TABLE>
<CAPTION>
PRO FORMA
1999
(SEE NOTE 2) 1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ------------ ---------- ----------
(UNAUDITED) (DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current liabilities:
Accounts payable.......................................... $ 12,778 12,778 10,153
Current portion of long-term debt......................... 3,866 3,866 3,502
Demand notes payable...................................... 752 752 754
Current portion of obligation for covenants not to
compete................................................. 1,236 1,236 881
Accrued interest payable.................................. 4,200 4,396 3,947
Accrued property taxes.................................... 2,078 2,078 1,847
Other accrued liabilities................................. 7,647 7,647 4,407
Income taxes payable...................................... -- -- 588
Deferred income taxes..................................... 1,767 1,767 --
-------- -------- --------
Total current liabilities............................. 34,324 34,520 26,079
-------- -------- --------
Long-term liabilities:
Long-term debt, net of current portion.................... 361,585 458,529 364,610
Put warrant obligation.................................... -- -- 4,169
Unamortized investment tax credits........................ 577 577 632
Obligation for covenants not to compete, net of current
portion................................................. 2,622 2,622 2,162
Deferred income taxes..................................... 25,039 25,039 27,950
Other liabilities......................................... 11,551 3,106 3,189
-------- -------- --------
Total long-term liabilities........................... 401,374 489,873 402,712
-------- -------- --------
Minority interest........................................... 443 443 435
-------- -------- --------
Common stock subject to put option, 1,752,000 shares........ -- 3,000 3,000
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock:
Series D nonvoting, convertible, cumulative
participating, par value $.01 per share, authorized
30,000,000 shares..................................... 215 -- --
Common stock:
Class A voting, par value $.01 per share, authorized
60,000,000 shares, issued and outstanding 34,450,940
shares................................................ 115 345 345
Class B nonvoting, convertible, par value $.01 per
share, authorized 50,000,000 shares................... 125 -- --
Class C nonvoting, convertible, par value $.01 per
share, authorized 4,600,000 shares.................... 42 -- --
Additional paid--in capital............................... 230,862 48,793 45,407
Unearned compensation..................................... (15,926) -- --
Accumulated other comprehensive income.................... 4,187 4,187 --
Accumulated deficit....................................... (77,229) (64,906) (35,866)
-------- -------- --------
Total stockholders' equity (deficit).................. 142,391 (11,581) 9,886
-------- -------- --------
Total liabilities and stockholders' equity............ $578,532 516,255 442,112
======== ======== ========
</TABLE>
22
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating revenues:
Switched services......................................... $108,430 72,124 39,257
Resold services........................................... 22,323 7,803 4,531
Other..................................................... 16,786 12,080 3,975
-------- ------- ------
Total operating revenues.............................. 147,539 92,007 47,763
-------- ------- ------
Operating expenses:
Plant operations.......................................... 21,088 14,293 6,857
Corporate and customer service............................ 54,901 27,635 12,483
Depreciation and amortization............................. 31,632 20,089 8,777
Cost of services resold................................... 19,190 6,163 4,791
Other general and administrative.......................... 9,028 7,265 2,416
-------- ------- ------
Total operating expenses.............................. 135,839 75,445 35,324
-------- ------- ------
Income from operations................................ 11,700 16,562 12,439
-------- ------- ------
Other income (expense):
Net gain (loss) on sale of investments and other assets... 512 651 (19)
Interest income........................................... 446 442 212
Dividend income........................................... 1,452 1,119 1,182
Interest expense.......................................... (51,185) (27,170) (9,293)
Other nonoperating, net................................... 2,520 885 140
-------- ------- ------
Total other expense................................... (46,255) (24,073) (7,778)
-------- ------- ------
Earnings (loss) before income taxes and extraordinary
item................................................ (34,555) (7,511) 4,661
Income tax (expense) benefit................................ 5,615 2,112 (1,876)
-------- ------- ------
Earnings (loss) before extraordinary item............. (28,940) (5,399) 2,785
Extraordinary item -- loss on early retirement of debt, net
of income tax benefit of $1,755 in 1998 and $2,296 in
1997...................................................... -- (2,521) (3,611)
-------- ------- ------
Loss before minority interest......................... (28,940) (7,920) (826)
Minority interest in income of subsidiaries................. (100) (80) (62)
-------- ------- ------
Net loss.............................................. $(29,040) (8,000) (888)
======== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS` EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
CLASS A ADDITIONAL OTHER ACCUMU- STOCKHOLDERS'
COMMON PAID-IN COMPREHENSIVE LATED EQUITY
STOCK CAPITAL INCOME DEFICIT (DEFICIT)
-------- ---------- ------------- -------- -------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.............. $ 79 (75) -- (2,146) (2,142)
Net loss................................ -- -- -- (888) (888)
Issuance of 9,751,600 shares of common
stock................................. 98 15,777 -- -- 15,875
Conversion of redeemable preferred
stock................................. -- 112 -- -- 112
Capital contribution.................... -- 924 -- -- 924
Repurchase of redeemable preferred
stock................................. -- -- -- (24,541) (24,541)
Redeemable preferred stock dividends.... -- -- -- (279) (279)
---- ------- ------ -------- --------
Balance, December 31, 1997.............. 177 16,738 -- (27,854) (10,939)
Net loss................................ -- -- -- (8,000) (8,000)
Preferred stock dividends............... -- -- -- (12) (12)
Issuance of 18,590,800 shares of common
stock................................. 185 31,652 -- -- 31,837
Reclassification of 1,752,000 shares of
common stock subject to put option.... (17) (2,983) -- -- (3,000)
---- ------- ------ -------- --------
Balance, December 31, 1998.............. 345 45,407 -- (35,866) 9,886
Net loss................................ -- -- -- (29,040) (29,040)
Change in unrealized gain on securities
available-for-sale, net of tax effect
of $2,566............................. -- -- 4,187 -- 4,187
Increase in stock appreciation rights... -- 3,386 -- -- 3,386
---- ------- ------ -------- --------
Balance, December 31, 1999.............. $345 48,793 4,187 (64,906) (11,581)
==== ======= ====== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss.................................................... $(29,040) (8,000) (888)
Change in unrealized gain on securities
available--for--sale, net of tax effect of $2,566......... 4,187 -- --
-------- ------- -----
Comprehensive loss.................................... $(24,853) (8,000) (888)
======== ======= =====
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(29,040) (8,000) (888)
-------- -------- -------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 33,342 21,534 9,093
Provision for uncollectible revenue....................... 634 390 --
Deferred income taxes..................................... (6,711) (1,653) 207
Income from equity method investments..................... (2,497) (931) --
Deferred patronage dividends.............................. (380) (265) (585)
Minority interest in income of subsidiaries............... 100 80 62
Increase (decrease) in put warrant obligation............. 13,331 714 (295)
Compensation charge for stock appreciation rights......... 3,386 -- --
Net (gain) loss on sale of investments and other assets... (512) (630) 17
Loss on early retirement of debt.......................... -- 2,897 1,864
Amortization of investment tax credits.................... (193) (130) (31)
Changes in assets and liabilities arising from operations,
net of acquisitions:
Accounts receivable..................................... (853) 5,988 (1,563)
Prepaid and other assets................................ (23) 253 (106)
Accounts payable........................................ (2,117) (1,398) 1,664
Acscrued interest payable............................... 384 1,128 720
Accrued liabilities..................................... 2,773 689 636
Income taxes recoverable/payable........................ (3,920) (5,799) (956)
-------- -------- -------
Total adjustments..................................... 36,744 22,867 10,727
-------- -------- -------
Net cash provided by operating activities............. 7,704 14,867 9,839
-------- -------- -------
Cash flows from investing activities:
Acquisitions of telephone properties, net of cash
acquired................................................ (53,949) (217,080) (30,845)
Acquisition of property, plant, and equipment............. (43,509) (12,433) (8,262)
Proceeds from sale of property, plant, and equipment...... 116 107 121
Distributions from investments............................ 2,590 118 63
Payment on covenants not to compete....................... (988) (219) (94)
Acquisition of investments................................ (349) (8) (241)
Proceeds from sale of investments......................... 20,065 4,088 403
Payments received on direct financing leases.............. -- -- 249
Decrease in other assets/liabilities, net................. (586) (95) (361)
-------- -------- -------
Net cash used in investing activities................. (76,610) (225,522) (38,967)
-------- -------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 138,943 510,583 71,134
Repayment of long-term debt............................... (52,056) (307,763) (22,104)
Purchase of stock warrants................................ (17,500) -- --
Repurchase of preferred stock and warrants................ -- (175) (31,487)
Dividends paid to preferred stockholders.................. -- (12) (279)
Net proceeds from the issuance of common stock............ -- 31,837 15,875
Loan origination costs.................................... (3,703) (17,345) (1,949)
Payment of early retirement benefits...................... -- -- (25)
Dividends paid to minority stockholders................... (4) (6) (4)
Release of restricted funds............................... -- -- 561
Repayment of capital lease obligation..................... (92) (45) (25)
-------- -------- -------
Net cash provided by financing activities............. 65,588 217,074 31,697
-------- -------- -------
Net increase (decrease) in cash and cash
equivalents.......................................... (3,318) 6,419 2,569
Cash and cash equivalents, beginning of year................ 13,241 6,822 4,253
-------- -------- -------
Cash and cash equivalents, end of year...................... $ 9,923 13,241 6,822
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, 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);
FairPoint Communications Corp. (FairPoint); 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, internet services,
cable services, equipment sales, and installation and repair services. MJD
Capital Corp. leases equipment to other subsidiaries of MJD. FairPoint is a
competitive local exchange carrier (CLEC) offering local and long distance,
internet, and data services in various states.
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.;
and S T Long Distance, Inc. (S T Long Distance); Venture's wholly-owned
subsidiaries include Sidney Telephone Company (Sidney); C-R
Communications, Inc. (C-R); Taconic Telephone Corp. (Taconic); Ellensburg
Telephone Company (Ellensburg); Chouteau Telephone Company (Chouteau);
Utilities, Inc. (Utilities); Chautauqua & Erie Telephone Corporation (C&E);
Columbus Grove Telephone Company (Columbus); The Orwell Telephone Company
(Orwell) and Telephone Services Company (TSC). Services' wholly-owned
subsidiaries include Bluestem Telephone Company (Bluestem); Big Sandy
Telecom, Inc. (Big Sandy); Columbine Telecom Company (Columbine); Odin Telephone
Exchange, Inc. (Odin); Kadoka Telephone Co. (Kadoka); Ravenswood
Communications, Inc. (Ravenswood); Union Telephone Company of Hartford (Union);
Armour Independent Telephone Co. (Armour); Yates City Telephone Company (Yates)
and WMW Cable TV Co. (WMW).
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 accompanying unaudited pro forma balance sheet gives effect to
significant subsequent events occurring in January and February 2000, as if they
had occurred on December 31, 1999. Those subsequent events include authorizing
additional classes of capital stock, issuing and reacquiring capital stock for
net proceeds of $159,282,000, borrowing additional debt of $5,400,000, repaying
debt and accrued interest payable in the amount of $102,540,077, being released
from put obligations on its common stock and recognizing compensation expense in
the amount of $28,249,011 for stock-based compensation to employees. See also
note 2 for a description of these subsequent events.
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 (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. Accordingly, SFAS No. 71 requires the Company's
telephone subsidiaries to depreciate telephone plant over useful lives that
would otherwise be determined by management.
27
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 are recognized as services are rendered and are primarily derived
from the usage of the Company's networks and facilities or under revenue sharing
arrangements with other telecommunications carriers. Revenues are derived 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.
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 (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.
The costs of services resold are based primarily on the direct costs
associated with owned and leased transmission capacity and the cost of
transmitting and terminating traffic on other carriers' facilities. Revenues and
costs of services resold are recognized as services are provided to local and
long-distance end users.
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.
28
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
INVESTMENTS
Investments consist of stock in CoBank, ACB (CoBank), Rural Telephone Bank
(RTB), the Rural Telephone Finance Cooperative (RTFC), Illuminet Holdings, Inc.
(Illuminet), and various cellular companies and partnerships and other minority
equity investments in nonregulated entities. For the investments in
partnerships, the equity method of accounting is used. All other investments are
stated at cost. To determine if an impairment of an investment exists, the
Company monitors and evaluates the financial performance of the business in
which it invests and compares the carrying value of the investee to the fair
values of similar investments, which in certain instances, is based on
traditional valuation models utilizing multiples of cash flows. When
circumstances indicate that a decline in the fair value of the investment has
occurred and the decline is other than temporary, the Company records the
decline in value as a realized loss and a reduction in the cost of the security.
The Company did not incur any losses from other than temporary declines in fair
value in 1999, 1998, and 1997.
At December 31, 1999, the investment in Illuminet stock was classified as
available-for-sale in accordance with SFAS No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. SFAS No. 115 requires fair value
reporting for certain investments in debt and equity securities with readily
determinable fair values. Available-for-sale securities are recorded at fair
value. Unrealized holding gains and losses, net of the related tax effect, are
excluded from earnings and are reported as a separate component of comprehensive
income until realized.
The Company currently receives patronage dividends from its investments in
businesses organized as cooperatives for federal income tax purposes (CoBank and
RTFC stock). Patronage dividends represent cash distributions of the
cooperative's earnings and notices of allocations of earnings to the Company.
Deferred and uncollected patronage dividends are included as part of the basis
of the investment until collected. The RTB 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. Depreciation is determined using the
straight-line method for financial reporting purposes.
29
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEBT ISSUE COSTS
Debt issue costs are being amortized over the life of the related debt,
ranging from five to ten years. Accumulated amortization of loan origination
costs was $3,104,714 and $1,255,730 at December 31, 1999 and 1998, respectively.
INTANGIBLE ASSETS
The covenants not to compete are being amortized over their useful life of
three to five years. Accumulated amortization of covenants not to compete was
$1,470,000 and $437,500 at December 31, 1999 and 1998, respectively.
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
an estimated useful life of forty years. Accumulated amortization of goodwill
was approximately $12.4 million and $6.9 million at December 31, 1999 and 1998,
respectively.
The Company reviews its long-lived assets, including goodwill, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. 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 exceeds 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.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to 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 rates is recognized in income in the period that includes the
enactment date.
PENSION AND OTHER POSTRETIREMENT PLANS
One of the Company's subsidiaries sponsored a defined benefit plan covering
substantially all of their employees. The benefits were based on years of
service and the employee's compensation levels prior to retirement. Benefits
under this plan were frozen in connection with the Company's acquisition of the
company. Two of the Company's subsidiaries also sponsor other postretirement
healthcare benefits for substantially all retirees. The net periodic costs of
pension and other postretirement benefit plans are recognized as employees
render the services necessary to earn the postretirement benefits.
30
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate swaps to manage its exposure to fluctuations
in interest rates of its variable rate debt. Amounts receivable or payable under
interest rate swap agreements are accrued at each balance sheet date and
included as adjustments to interest expense.
STOCK-BASED COMPENSATION
The Company accounts for its stock option plan using the intrinsic
value-based method prescribed by Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB No. 25), and related
interpretations. As such, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the exercise
price. SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, permits entities
to recognize as expense over the vesting period the fair value of all stock-
based awards on the date of grant. SFAS No. 123 allows entities to continue to
apply the provisions of APB No. 25 and provide pro forma net income disclosures
as if the fair-value method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the intrinsic value-based method of
accounting described above, and has adopted the disclosure requirements of SFAS
No. 123.
STOCK APPRECIATION RIGHTS
Stock appreciation rights have been granted to certain members of management
by principal shareholders of the Company. The Company accounts for stock
appreciation rights in accordance with Financial Accounting Standards Board
Interpretation No. 28, ACCOUNTING FOR STOCK APPRECIATION RIGHTS AND OTHER
VARIABLE STOCK OPTION OR AWARD PLANS. The Company measures compensation as the
amount by which the market value of the shares of the Company's stock covered by
the grant exceeds the option price or value specified, by reference to a market
price or otherwise, subject to any appreciation limitations under the plan and a
corresponding credit to additional paid-in capital. Changes, either increases or
decreases, in the market value of those shares between the date of the grant and
the measurement date result in a change in the measure of compensation for the
right. Valuation of stock appreciation rights is typically based on traditional
valuation models utilizing multiples of cash flows, unless there is a current
market value for the Company's stock.
RECLASSIFICATIONS
Certain amounts have been reclassified for comparability with the 1999
presentation.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and reported amounts of
revenues and expenses, to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) SUBSEQUENT EVENTS
The accompanying unaudited pro forma balance sheet gives effect to
significant subsequent events occurring in January and February 2000, as if they
had occurred on December 31, 1999. Those subsequent
31
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(2) SUBSEQUENT EVENTS (CONTINUED)
events include authorizing additional classes of capital stock, issuing and
reacquiring capital stock for net proceeds of $159,282,000, borrowing additional
debt of $5,400,000, repaying debt and accrued interest payable in the amount of
$102,540,077, being released from put obligations on its common stock and
recognizing compensation expense in the amount of $28,249,011 for stock-based
compensation to employees.
ADDITIONAL CLASSES OF CAPITAL STOCK
On January 19, 2000, the Company amended its articles of incorporation to
authorize an aggregate of 144,600,000 shares of capital stock. Following the
amendment, the authorized share capital of the Company includes the following:
CLASS A COMMON STOCK--authorized 60,000,000 voting common shares at a par
value of $.01 per share. Class A common shares carry one vote per share.
CLASS B COMMON STOCK--authorized 50,000,000 nonvoting, convertible common
shares at a par value of $.01 per share. The Class B common shares are
automatically convertible into Class A common shares upon the receipt of all
governmental approvals necessary to effectuate a change in control. The
conversion rate for the Class B common shares to Class A common shares is
one-for-one.
CLASS C COMMON STOCK--authorized 4,600,000 nonvoting, convertible common
shares at a par value of $.01 per share. The Class C common shares are
automatically convertible into Class A common shares upon either the
completion of an initial public offering of at least $150 million of the
Company's Class A common stock or the occurrence of certain conversion
events, as defined in the articles of incorporation. The conversion rate for
the Class C common shares to Class A common shares is one-for-one.
SERIES D PREFERRED STOCK--authorized 30,000,000 nonvoting, convertible,
cumulative participating preferred shares at a par value of $.01 per share.
The Series D preferred shares are automatically convertible into Class A
common shares upon the receipt of all regulatory approvals necessary to
effectuate a change in control. Series D preferred shares may be converted
into Class B common shares at any time. The conversion rate for the
Series D preferred shares to either Class A or B common shares is
one-for-one. Any portion of the accrued and unpaid dividends is also
convertible into additional Class A or B common shares based upon a
conversion rate of $13.12 per share.
The Series D preferred shares do not provide for the payment of dividends
for up to one year following their issuance. If the Series D preferred
shares are not converted into Class A common shares within one year of
issue, dividends accrue on a daily basis at a rate of 7.0% per annum,
retroactively from the date of issue. If not converted by the eighth annual
anniversary of their issuance, the dividend rate per annum increases by 2.0%
annually up to a maximum dividend rate of 13.0%. In the event that the
Company provides a stock dividend to its Class A common shareholders, the
holders of Series D preferred shares are entitled to receive a dividend of
preferred shares at an equal rate. The Company also has the option of
redeeming all outstanding shares of Series D preferred shares at a price
equal to liquidation value plus accrued dividends.
32
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(2) SUBSEQUENT EVENTS (CONTINUED)
On January 23, 2000, the Company declared a twenty-for-one stock split in
the form of a stock dividend. This stock split has been given retroactive effect
in the accompanying consolidated financial statements.
ISSUANCE AND REACQUISITION OF CAPITAL STOCK
Through January 31, 2000, the Company effected the following changes in its
capital stock accounts. Dollar amounts are presented in thousands.
<TABLE>
<CAPTION>
CLASS A COMMON
SUBJECT TO PUT
OPTION SERIES D PREFERRED CLASS A COMMON CLASS B COMMON
--------------------- --------------------- ---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- -------- ---------- -------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1999..................... 1,752,000 $ 3,000 -- $ -- 34,450,940 $ 345 -- $ --
Issuance of common stock
under stock options and
warrants................. -- -- -- -- 307,200 3 -- --
Issuance of capital stock
for cash proceeds, net of
direct expenses of
approximately $23.4
million.................. -- -- 4,673,920 47 100,160 1 4,243,728 42
Exchange of Class A common
shares for Class B common
and Series D preferred
shares................... -- -- 16,787,800 168 (25,087,800) (251) 8,300,000 83
Reclassification of Class A
common subject to put
option................... (1,752,000) (3,000) -- -- 1,752,000 17 -- --
Compensation charges for
stock-based
compensation............. -- -- -- -- -- -- -- --
---------- ------- ---------- ---- ----------- ----- ---------- ----
Balance at January 31,
2000..................... -- $ -- 21,461,720 $215 11,522,500 $ 115 12,543,728 $125
========== ======= ========== ==== =========== ===== ========== ====
<CAPTION>
CLASS C COMMON ADDITIONAL
-------------------- PAID-IN
SHARES AMOUNT CAPITAL
--------- -------- ----------
<S> <C> <C> <C>
Balance at December 31,
1999..................... -- $-- $ 48,793
Issuance of common stock
under stock options and
warrants................. -- -- 132
Issuance of capital stock
for cash proceeds, net of
direct expenses of
approximately $23.4
million.................. 4,269,440 42 150,705
Exchange of Class A common
shares for Class B common
and Series D preferred
shares................... -- -- --
Reclassification of Class A
common subject to put
option................... -- -- 2,983
Compensation charges for
stock-based
compensation............. -- -- 28,249
--------- --- --------
Balance at January 31,
2000..................... 4,269,440 $42 $230,862
========= === ========
</TABLE>
33
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(2) SUBSEQUENT EVENTS (CONTINUED)
Shares of Class A common stock issued under stock options and warrants
included 35,300 shares issued under the MJD Communications, Inc. Stock Incentive
Plan (1998 Plan), 255,360 shares issued under the 1995 Stock Option Plan (1995
Plan), and 16,580 shares issued pursuant to warrants in a cashless exercise.
Options surrendered in lieu of cash were 5,300 under the 1998 Plan and 4,980
under the 1995 Plan. Following the conversion of these Class A common shares
into Series D preferred shares, the newly issued Series D preferred shares were
sold to a new principal shareholder of the Company.
At a price of $13.12 per share, the Company issued 4,673,920 shares of
Series D preferred stock, 100,160 shares of Class A common stock, 4,243,728
shares of Class B common stock and 4,269,440 shares of Class C common stock. Net
proceeds from the issuance of capital stock was $159,282,000. Direct costs of
approximately $23.4 million associated with the issuance of this capital stock
were recorded as a reduction to paid-in capital. These costs included
approximately $9.6 million of transaction fees and expenses paid to a new
principal shareholder, transaction fees of $8.4 million which will be accrued to
be paid to an existing shareholder upon liquidation of their holdings, and
$0.4 million for services rendered in consummating the transaction paid to a law
firm in which a partner of the firm is a shareholder of the Company. The Company
also entered into advisory and consulting agreements with both principal
shareholders which require payments to each of approximately $500,000 per annum
by the Company through December 31, 2006.
The Company reacquired 25,087,800 Class A common shares in exchange for
16,787,800 shares of Series D preferred stock and 8,300,000 shares of Class B
common stock. The Class A common shares were retired upon reacquisition.
ISSUANCE AND REPAYMENT OF DEBT
In January 2000, FairPoint borrowed an additional $5,400,000 under its
convertible senior secured revolving credit facility. On January 20, 2000, the
Company repaid borrowings of $75,196,802 under the Company's senior secured
credit facility and $27,146,966 under FairPoint's credit facility including
accrued interest of $196,309. Interest expense on these borrowings was
approximately $1.4 million during 1999.
RELEASE OF PUT OBLIGATION
On January 20, 2000, the Company was released from put obligations
associated with shareholder loan agreements secured by 1,752,000 shares of the
Company's Class A common shares. As a result, the Company reclassified
$3,000,000 from temporary equity to the permanent capital accounts of the
Company.
COMPENSATION EXPENSE
On January 20, 2000, the Company's Board of Directors amended a grant of
options to purchase 40,600 shares of the Company's Class A common stock under
the 1998 Plan to make those options immediately exercisable and fully vested.
The options were previously exercisable only upon the occurrence of a qualifying
liquidating event, as defined under the 1998 Plan. A compensation charge of
$463,002 was recognized in connection with the amendment of the options. As
discussed above, these options to purchase shares of Class A common shares were
exercised in January 2000, converted into Series D preferred shares, and sold to
a new principal shareholder of the Company for cash.
34
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(2) SUBSEQUENT EVENTS (CONTINUED)
As discussed above, options to purchase 260,340 shares of Class A common
stock under the 1995 Plan were exercised in January 2000, converted into
Series D preferred shares and sold to a new principal shareholder of the Company
for cash. As a result, the Company recorded a compensation charge of $3,349,665.
On January 20, 2000, certain of the Company's principal shareholders sold
newly issued Series D preferred shares for cash to a third party. The
transaction was subject to the requirements of shareholders' agreements whereby
the selling shareholder is obligated to provide a cash payment to the Company's
founding shareholders, including two employee-shareholders. (See also note 10.)
In addition, another of the Company's principal shareholders transferred
1,093,060 shares of Series D preferred shares to the employee-shareholders in
settlement of its cash payment obligation under the shareholders' agreements. As
a result of these transactions, the Company recognized a compensation charge of
$8,510,626.
On February 23, 2000, the Company's board of directors approved a
transaction whereby the Company will grant stock options under the 1998 Plan to
employee participants in the FairPoint Communications Corp. Stock Incentive Plan
(FairPoint Plan) in consideration of the cancellation of all options previously
granted under the FairPoint Plan. FairPoint also intends to provide a bonus
program for option holders in order to maintain the same economic benefits as
previously existed under the FairPoint Plan. Under the transaction, which is
pending ratification by the FairPoint option holders, the Company will grant
options to purchase 1,618,820 shares of Class A common stock under the 1998 Plan
at an exercise price of $3.28 per share. Upon cancellation of the Fairpoint
options, the Fairpoint Plan will be terminated. The total compensation charge of
$15,925,718 related to the option grant will be amortized over the vesting
period of five years. This charge has been reflected in the unaudited pro forma
balance sheet as of December 31, 1999 as unearned compensation and an increase
to additional paid-in capital. The vesting period may accelerate in the event of
a change in control, as defined in the plan agreement. FairPoint also intends to
provide a cash bonus of $5,308,573 to its employees, which will be amortized
over the vesting period of five years. In connection with this transaction, the
Company increased the number of shares authorized under the 1998 Plan to
9,817,482 shares.
(3) ACQUISITIONS
Certain subsidiaries of MJD acquired telephone properties through a number
of acquisitions in 1998 and 1999.
On March 30, 1998, the Company acquired 100% of the common stock of Taconic.
On April 30, 1998, the Company acquired 100% of the common stock of Ellensburg.
On June 1, 1998, the Company acquired 100% of the common stock of Chouteau. On
November 6, 1998, the Company acquired 100% of the common stock of Utilities.
The aggregate purchase price for these acquisitions was $224.1 million.
On February 1, 1999, the Company acquired 100% of the common stock of
Ravenswood. On February 16, 1999, the Company acquired 100% of the common stock
of Columbus. On April 30, 1999, the Company acquired 100% of the common stock of
Union, Armour and WMW. On September 1, 1999, the Company acquired 100% of the
common stock of Yates. On December 17, 1999 the Company acquired 100% of the
common stock of Orwell. The aggregate purchase price for these acquisitions was
$75.3 million.
35
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(3) ACQUISITIONS (CONTINUED)
Acquisition costs were approximately $0.9 million and $1.2 million in 1999
and 1998, 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 approximately
$36.7 million and $156.5 million and has been recognized as goodwill in 1999 and
1998, respectively. The Company's allocation of purchase price for Orwell is
preliminary because the Company has not been able to obtain all of the data
required to complete the allocation for this recently acquired business.
The allocation of the total net purchase price for the 1999 and 1998
acquisitions are shown on the table below:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $ 25,484 27,539
Property, plant, and equipment.............................. 18,675 85,161
Excess cost over fair value of net assets acquired.......... 36,710 156,540
Other assets................................................ 11,598 30,577
Current liabilities......................................... (2,113) (15,967)
Noncurrent liabilities...................................... (14,131) (58,606)
-------- -------
Total net purchase price................................ $ 76,223 225,244
======== =======
</TABLE>
The Company has entered into agreements to acquire two additional rural
local exchange carriers in 2000. The aggregate purchase price for the
acquisitions is expected to approximate $245.0 million and will be financed
through existing and new debt facilities and issuance of equity. (See notes 2
and 6.)
The following unaudited pro forma information presents the combined results
of operations of the Company as though the acquisitions in 1999 and 1998
occurred on January 1, 1998. 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,
-----------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Revenues................................................. $156,627 135,706
Loss before extraordinary item........................... 30,912 193
Net loss................................................. 30,912 2,714
</TABLE>
36
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(4) PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment as of December 31, 1999 and 1998
is shown on the table below:
<TABLE>
<CAPTION>
ESTIMATED
LIFE (IN YEARS) 1999 1998
--------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Land...................................................... -- $ 1,640 1,442
Buildings and leasehold improvements...................... 2--40 22,993 19,101
Telephone equipment....................................... 3--50 327,824 263,029
Cable equipment........................................... 3--20 1,615 5,332
Furniture and equipment................................... 3--32 13,433 9,333
Vehicles and equipment.................................... 3--27 12,804 10,610
Computer software......................................... 3--10 3,567 365
--------- ---------
Total property, plant, and equipment.................... 383,876 309,212
Accumulated depreciation.................................. (205,580) (166,891)
--------- ---------
Net property, plant, and equipment...................... $ 178,296 142,321
========= =========
</TABLE>
The composite depreciation rate for property and equipment was 7.36% in
1999, 7.39% in 1998, and 6.66% in 1997. Construction expenditures for 2000 are
expected to approximate $123 million. The Company anticipates funding
construction from operations and existing debt facilities.
(5) INVESTMENTS
At December 31, 1999, the cost, unrealized holding gain, and fair value of
Illuminet stock, the Company's only investment classified as available-for-sale,
was $573,605, $6,753,275 and $7,326,880, respectively. The unrealized holding
gain is reported as a separate component of comprehensive income, net of related
taxes of $2,566,245. At December 31, 1998, Illuminet stock was carried at cost,
as there was no readily determinable fair value. There were no sales of
available-for-sale securities during 1999, 1998 and 1997.
37
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(5) INVESTMENTS (CONTINUED)
The Company's non-current investments consist of the following at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Investment in cellular companies and partnerships......... $22,374 27,047
RTB stock................................................. 10,259 6,934
Illuminet stock........................................... -- 421
CoBank stock and unpaid deferred CoBank patronage......... 2,326 1,958
RTFC secured certificates and unpaid deferred RTFC
patronage............................................... 688 1,055
Other nonmarketable minority equity investments........... 599 479
------- -------
Total investments....................................... $36,246 37,894
======= =======
</TABLE>
The investments in cellular partnerships accounted for under the equity
method and the Company's ownership percentage as of December 31, 1999 follow:
<TABLE>
<S> <C>
Chouteau Cellular Telephone Company......................... 33.0%
GTE Ohio RSA #3 LP.......................................... 25.0%
Illinois Valley Cellular RSA2--I Ptnrs...................... 13.3%
Illinois Valley Cellular RSA2--II Ptnrs..................... 13.3%
Illinois Valley Cellular RSA2--III Ptnrs.................... 13.3%
ILLINET Communications, LLC................................. 9.1%
Orange County-Poughkeepsie Limited Partnership.............. 7.5%
Illinetworks, LLC........................................... 7.4%
ILLINET Communications of Central IL LLC.................... 5.2%
</TABLE>
38
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(6) LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 is shown below:
<TABLE>
<CAPTION>
PRO FORMA
1999
(SEE NOTE 2) 1999 1998
------------ -------- --------
(UNAUDITED) (DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Senior secured notes payable, variable rates ranging from
8.13% to 10.00% at December 31, 1999, due 2004 to 2007.... $140,316 215,513 141,841
Senior subordinated notes due 2008:
Fixed rate, 9.50%......................................... 125,000 125,000 125,000
Variable rate, 10.32% at December 31, 1999................ 75,000 75,000 75,000
Senior secured revolving note payable, variable rate of
10.75% to 11.75% at December 31, 1999, due 2004........... -- 21,747 --
Senior notes payable to RTFC:
Fixed rate, 9.20%, due 2009............................... 4,532 4,532 4,918
Variable rates ranging from 6.95% to 8.80% at December 31,
1999, due 2009.......................................... 6,795 6,795 7,362
Subordinated promissory notes payable, 7.00%, due 2005...... 7,000 7,000 7,000
First mortgage notes payable to Rural Utilities Service,
fixed rates ranging from 8.72% to 10.78%, due 2009 to
2016...................................................... 6,459 6,459 6,679
Other debt, 5.75% to 9.50%, due 2000 to 2004................ 349 349 312
-------- ------- -------
Total outstanding long-term debt.......................... 365,451 462,395 368,112
Less current portion........................................ (3,866) (3,866) (3,502)
-------- ------- -------
Total long-term debt, net of current portion.............. $361,585 458,529 364,610
======== ======= =======
</TABLE>
The approximate aggregate maturities of long-term debt for each of the five
years subsequent to December 31, 1999 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (DOLLARS IN THOUSANDS)
- ----------- ----------------------
<S> <C>
2000..................................................... $ 3,866
2001..................................................... 4,425
2002..................................................... 4,601
2003..................................................... 4,766
2004..................................................... 112,247
Thereafter............................................... 332,490
--------
$462,395
========
</TABLE>
On March 30, 1998, the Company closed a $315 million senior secured credit
facility (the 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. Approximately $215.5 million senior secured notes payable
were outstanding under the Credit Facility at December 31, 1999. 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
39
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(6) LONG-TERM DEBT (CONTINUED)
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 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 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 1/2 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. The Company used an
interest rate swap agreement, with a notional amount of $25 million, to
effectively convert a portion of its variable interest rate exposure to a fixed
rate of 9.91%. The swap agreement expires on September 29, 2000. As discussed in
note 2, the Company repaid $75.2 million of its borrowings under the Credit
Facility in January 2000.
On March 14, 2000, an additional $165 million was committed and available to
the Company under the Credit Facility.
The Credit Facility contains various restrictions, including those relating
to payment of dividends by the Company. In management's opinion, the Company has
complied with all such requirements or obtained a waiver letter for events of
non-compliance. Substantially all assets of the Company are collateralized to
secure the Credit Facility.
On May 5, 1998, the Company consummated a debt offering consisting of
$125 million in aggregate principal amount of Senior Subordinated Notes due 2008
(the Fixed Rate Notes), and $75 million in aggregate principal amount of
Floating Rate Callable Securities due 2008 (the Floating Rate Notes). The notes
are unsecured obligations of the Company and are subordinated to all existing
and future senior indebtedness. Interest on the notes is payable semiannually.
Interest on the Fixed Rate Notes is 9.5% and interest on the Floating Rate Notes
is equal to a rate per annum at LIBOR plus 418.75 basis points. As to the
Floating Rate Notes, the Company used two interest rate swap agreements, with
notional amounts of $50 million and $25 million, respectively, to effectively
convert its variable interest rate exposure to a fixed rate of 10.01% and 9.95%,
respectively. The swap agreements expire on November 1, 2001 and November 1,
2000, respectively.
The Fixed Rate Notes are redeemable, in whole or in part, at the option of
the Company, at any time on or after May 1, 2003 at redemption prices (expressed
as a percentage of the principal amount) declining annually from 104.7%
beginning May 1, 2003 to 100% beginning May 1, 2006 and thereafter, together
with accrued interest to the redemption date and subject to certain conditions.
Not withstanding the foregoing, on or prior to May 1, 2001, the Company may
redeem up to 35% of the aggregate principal amount of the Fixed Rate Notes at a
redemption price of 109.5% of the principal amount thereof plus accrued and
unpaid interest, if any, to the redemption date, with the proceeds of an equity
offering.
The Floating Rate Notes are redeemable, in whole or in part, at any time at
the option of the Company, at redemption prices (expressed as a percentage of
the principal amount) declining annually from 105% beginning May 1, 1998 to 100%
beginning May 1, 2003 and thereafter, together with accrued interest to the
redemption date and subject to certain conditions.
The Fixed and Floating Rate Notes' indenture places certain restrictions on
the ability of the Company to (i) incur additional indebtedness, (ii) make
restricted payments (dividends, redemptions, and certain other payments),
(iii) incur liens, (iv) issue and sell stock of a subsidiary, (v) sell or
otherwise dispose of property, business, or assets, (vi) enter into sale and
leaseback transactions, (vii) engage in
40
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(6) LONG-TERM DEBT (CONTINUED)
business other than the telecommunications business, and (viii) engage in
transactions with affiliates. In management's opinion, the Company has complied
with all such requirements.
The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its interest rate swap agreements. The Company
anticipates, however, that the counterparties will be able to fully satisfy
their obligations under the contracts.
On October 20, 1999, FairPoint closed a $100 million convertible senior
secured revolving credit facility (the FairPoint Credit Facility). Under the
FairPoint Credit Facility, funds are available on a revolving basis, for a
period up to five years from the date of closing. Borrowings under the FairPoint
Credit Facility are secured by all existing and future assets of FairPoint and
by 100% of the stock of FairPoint's subsidiaries. Pursuant to the terms of the
FairPoint Credit Facility, FairPoint is required to comply with certain
financial covenants. Upon an uncured default of certain covenants or if the debt
is not paid at final maturity, at the lenders' option, an exchange of all
outstanding indebtedness plus outstanding and accrued interest for an equal
dollar amount of payment in-kind preferred stock issued by the Company shall be
available as additional security. At December 31, 1999, FairPoint was in
compliance with all financial covenants. Borrowings under the FairPoint Credit
Facility are approximately $21.7 million at December 31, 1999. As discussed in
note 2, the Company borrowed an additional $5,400,000 and repaid all borrowings
of $27,146,966 under the FairPoint Credit Facility in January 2000.
In conjunction with the senior notes payable to RTFC, one of the Company's
subsidiaries, Utilities, is subject to restrictive covenants limiting the amount
of dividends that may be paid. At December 31, 1999, Utilities was in compliance
with these restrictions.
The Company has available a line of credit, with a total maximum limit of
$1,000,000, expiring in 2000. No borrowings have been made under this line of
credit at December 31, 1999.
The Company also has $752,000 unsecured demand notes payable to various
individuals and entities with interest payable at 5.75%.
(7) EMPLOYEE BENEFIT PLANS
The Company sponsors a voluntary 401(k) savings plan (the 401(k) Plan) that
covers substantially all eligible employees. Each 401(k) Plan year, the Company
contributes to the 401(k) Plan an amount of matching contributions determined by
the Company at its discretion. For the 401(k) Plan years ended December 31,
1999, 1998, 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
401(k) Plan also allows for a profit sharing contribution that is made based
upon management discretion. Total Company contributions to the 401(k) Plan were
$2,291,520, $1,163,906, and $422,069, for the years ended December 31, 1999,
1998 and 1997, respectively.
In 1999, the Company began a Non-Qualified Deferred Compensation Plan (the
NQDC Plan) that covers certain employees. The NQDC Plan allows highly
compensated individuals to defer additional compensation beyond the limitations
of the 401(k) Plan. Company matching contributions are subject to the same
percentage as the 401(k) Plan. Total Company contributions to the NQDC Plan were
$61,583 for the year ended December 31, 1999.
41
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(7) EMPLOYEE BENEFIT PLANS (CONTINUED)
C&E and Taconic also sponsor defined contribution 401(k) retirement savings
plans for union employees. C&E and Taconic match contributions to these plans
based upon a percentage of pay of all qualified personnel and make certain
profit sharing contributions. Contributions to the plans were approximately
$205,000 and $154,000, for the years ended December 31, 1999 and 1998,
respectively.
One of the Company's subsidiaries has a defined benefit pension plan
covering substantially all of its employees. The benefits are based on years of
service and the employee's compensation before retirement. The plan benefits
were frozen in 1998 in connection with the Company's acquisition of the
subsidiary. There is no additional minimum pension liability required to be
recognized and plan assets are sufficient to cover all plan obligations.
Two of the Company's subsidiaries sponsor healthcare plans that provide
postretirement medical benefits and other benefits to employees who meet minimum
age and service requirements upon retirement. The liabilities for the
postretirement medical benefits plans were not material to the consolidated
financial statements at December 31, 1999 and 1998.
Certain shareholders of the Company granted stock appreciation rights to
certain members of management. The stock appreciation rights are fully vested.
The stock appreciation rights may be settled in cash or stock, at the option of
the granting shareholders. In connection with the stock appreciation rights, the
Company recorded compensation expense of approximately $3,386,000 in 1999.
(8) INCOME TAXES
Income tax (expense) benefit before extraordinary item consists of the
following components:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $ (1,109) 346 (1,426)
State............................................ (180) (17) (274)
-------- ----- ------
Total current income tax (expense) benefit..... (1,289) 329 (1,700)
-------- ----- ------
Investment tax credits............................. 193 130 31
-------- ----- ------
Deferred:
Federal.......................................... 5,819 1,047 (130)
State............................................ 892 606 (77)
-------- ----- ------
Total deferred income tax (expense) benefit.... 6,711 1,653 (207)
-------- ----- ------
Total income income tax (expense) benefit...... $ 5,615 2,112 (1,876)
======== ===== ======
</TABLE>
42
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(8) INCOME TAXES (CONTINUED)
Total income tax (expense) benefit in 1999, 1998, and 1997, was different
than that computed by applying U. S. federal income tax rates to earnings before
income taxes. The reasons for the differences are shown below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax (expense) benefit.......... $ 11,748 2,553 (1,585)
State income tax (expense) benefit, net of federal
income tax benefit............................... 471 389 (232)
Amortization of investment tax credits............. 193 130 31
Goodwill amortization.............................. (1,559) (887) (186)
Change in fair value of put warrant obligation..... (4,681) (242) 100
Disallowed expenses and other...................... (557) 169 (4)
-------- ----- ------
Total income tax (expense) benefit............... $ 5,615 2,112 (1,876)
======== ===== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Federal and state tax loss carryforwards.............. $ 1,056 1,032
Employee benefits..................................... 586 1,010
Allowance for doubtful accounts....................... 213 211
Alternative minimum tax credits....................... 1,930 1,296
Warrants issued in connection with early retirement of
debt................................................ -- 291
------- ------
Total gross deferred tax assets..................... 3,785 3,840
Less, valuation allowance............................... -- --
------- ------
Net deferred tax assets............................. 3,785 3,840
Deferred tax liabilities:
Property, plant, and equipment, principally due to
depreciation differences............................ 16,605 17,242
Goodwill, due to amortization differences............. 2,471 1,903
Basis in investments.................................. 8,949 11,424
Unrealized gain on investments........................ 2,566 --
------- ------
Total gross deferred tax liabilities................ 30,591 30,569
------- ------
Net deferred tax liabilities........................ $26,806 26,729
======= ======
</TABLE>
The Company has minimum tax credits of approximately $1.9 million which may
be carried forward indefinitely. Management has concluded that no valuation
allowance is required because the full benefit of the deferred tax assets will
be realized through the future reversals of the deferred tax liabilities.
43
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(9) WARRANTS
In connection with the issuance of subordinated notes in 1994, the Company
issued 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, MJD required STE to issue 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 in 1998 as
described in note 10. The agreement stipulates that the put/call price of the
warrants should equal 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 obligation for the warrants based on the fair value
of STE's common stock as determined by management, at the issuance date of the
warrants. At each balance sheet date, the warrants were valued utilizing cash
flow models that management also uses in valuing potential acquisitions. Those
models estimate fair value using earnings before interest, taxes, depreciation,
and amortization (EBITDA), and multiples of EBITDA for recent acquisitions of
similar companies. The increase or decrease in fair value of the obligation for
the warrants is recognized in earnings as interest expense. In December 1999,
the Company purchased the STE warrants for $17.5 million. The increase in the
value of the STE obligation during 1999 was $13.3 million.
In addition, the Company previously issued warrants to purchase 7.69 shares,
representing 7.14% of Sidney's common stock. The Company estimated the fair
value of the warrants at the date of issuance and included the fair value in the
initial allocation of purchase price for Sidney's common stock, with the related
value of the warrants issued to minority shareholders included in the obligation
for minority interests. In December 1999, the Company purchased the Sidney
warrants for $0.5 million. The excess $0.4 million associated with the Sidney
warrants was accounted for as an acquisition of minority interest and an
increase to goodwill.
(10) STOCKHOLDERS' EQUITY AND RECAPITALIZATION
Effective July 31, 1997, a recapitalization of the Company was completed.
The Company issued 8,846,720 shares of its Class A common stock to unrelated
third parties and members of management for proceeds of approximately
$15.1 million (net of offering expenses of $925,602). These proceeds, together
with additional borrowings of $39.2 million from CoBank and the issuance of
subordinated promissory notes in the amount of $3.5 million, were utilized to
repurchase and retire the remaining Series A preferred stock, all shares of
Series C preferred stock not owned by members of management, and all the
warrants and contingent warrants (the Warrants) to purchase the Company's
Class A common stock not owned by members of management for approximately
$35.0 million. The difference between the carrying value of the Series A and
Series C preferred stock, and the Warrants and the price at which the stock was
repurchased and retired ($24.5 million), was charged to retained earnings as it
represents a return to the preferred shareholders. In conjunction with the
recapitalization, STE also retired the subordinated notes payable of
$11,562,133. As a result of retiring the subordinated debt of STE, the Company
recognized an extraordinary loss of approximately $3.6 million (net of taxes of
$2.3 million), consisting of prepayment penalties of approximately
$4.0 million, the write-off of existing deferred financing costs of
approximately $1.1 million, and the issuance of additional put warrants valued
at $750,000. The additional put warrants were issued to the holders of the STE
warrants and debt in consideration of their consent to retire the STE debt (see
also note 9).
44
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(10) STOCKHOLDERS' EQUITY AND RECAPITALIZATION (CONTINUED)
In connection with the recapitalization of the Company, two of the Company's
shareholders entered into shareholder agreements with the Company and its
founding shareholders. At December 31, 1999, those two shareholders represented
2,834,160 shares (or 8.2%) of the Company's outstanding common stock. Under the
shareholder agreement, the Company's founding shareholders are entitled to a
cash payment as a result of the sale of the Company's common stock to a third
party by either of the two shareholders. The amount of the cash payment is
dependent upon the price of the shares sold and is contingent upon their
continued employment. Because the amount of their payment is ultimately
dependent upon their continuing employment, the Company will recognize
compensation expense for their amount of cash payment in the event that an exit
payment becomes due under their shareholder agreements. See note 2 for the
amount of compensation expense recognized by the Company subsequent to
December 31, 1999 as a result of these agreements.
During 1997, a shareholder of MJD contributed the net assets of Holdings,
totaling $150,000, in consideration for 29,000 shares of Class A common stock.
Also in 1997, existing subordinated notes payable to stockholders of the Company
in the amount of $923,500 were contributed as additional capital.
In October 1997, an additional 875,880 shares of Class A common stock were
issued for proceeds of $1.5 million.
On March 30, 1998 and April 30, 1998, the Company issued a total of
18,590,800 shares of its Class A common stock to unrelated third parties and
members of management for proceeds of approximately $31.8 million. These
proceeds were used to finance the acquisition of Taconic and Ellensburg.
(11) STOCK OPTION PLANS
The Company sponsors the 1995 Plan that covers officers, directors, and
employees of the Company. The Company may issue qualified or nonqualified stock
options to purchase up to 1,136,800 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 during years five through ten. In 1995, the
Company granted options to purchase 852,800 shares at $0.25 per share. There
were no options granted since 1995.
The per share weighted-average fair value of stock options granted during
1995 was $0.65 on the date of grant using the Black Scholes option-pricing
model. Input variables used in the model included no expected dividend yields, a
risk-free interest rate of 6.41%, and an estimated option life of five years.
Because the Company was nonpublic on the date of the grant, no assumption as to
the volatility of the stock price was made.
In December 1998, the Company adopted the FairPoint Plan for employees of
its subsidiary, FairPoint. Under the FairPoint Plan, participating employees are
granted options to purchase common stock of FairPoint at exercise prices not
less than the fair value of FairPoint common stock at the date of the grant. The
FairPoint Plan authorizes grants of options to purchase up to 1,000,000 shares
of authorized, but unissued common stock. All stock options have ten-year terms
and vest in 25% increments on the second, third, fourth and fifth anniversaries
of an individual grant. In the event of a change in control, outstanding options
will vest immediately.
Shares issued to employees under the FairPoint Plan are subject to a call
option by FairPoint. Under the call option, FairPoint may repurchase those
shares held by terminating employees at fair value if the
45
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(11) STOCK OPTION PLANS (CONTINUED)
shares were held by the employee for a minimum holding period of not less than
six months. The FairPoint Plan also provides for the reacquisition of common
shares by FairPoint in the event of death or disability of the option-holder.
At December 31, 1999, there were options available for grant of 114,500
additional shares under the FairPoint Plan. The per share weighted-average fair
value of stock options granted during 1999 was $0.30 on the date of grant using
the Black Scholes option-pricing model. Input variables used in the model
included no expected dividend yields, a risk-free interest rate of 5.25%, and an
estimated option life of ten years. Because the Company was nonpublic on the
date of the grant, no assumption as to the volatility of the stock price was
made.
The Company applies APB Opinion No. 25 in accounting for its 1995 and
FairPoint Plans and, accordingly, no compensation cost has been recognized for
its stock options in the consolidated financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income for 1999, 1998 and
1997 would not have been significantly reduced.
Stock option activity for 1999, 1998, and 1997 under the 1995 and FairPoint
Plans is summarized as follows:
<TABLE>
<CAPTION>
FAIRPOINT
1995 PLAN PLAN
------------------------------ ---------
1999 1998 1997 1999
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding at January 1................................ 852,800 852,800 852,800 --
Granted............................................... -- -- -- 970,500
Exercised............................................. -- -- -- --
Canceled or forfeited................................. -- -- -- (85,000)
------- ------- ------- -------
Outstanding at December 31.............................. 852,800 852,800 852,800 885,500
======= ======= ======= =======
Exercisable at December 31.............................. 852,800 781,720 611,160 --
======= ======= ======= =======
</TABLE>
All options granted in 1999 under the FairPoint Plan had an exercise price
of $0.50.
See note 2 for a description of options exercised under the 1995 Plan and
the cancellation of all options granted under the FairPoint Plan subsequent to
December 31, 1999.
In August 1998, the Company adopted the 1998 Plan. The 1998 Plan provides
for grants of up to 5,124,400 nonqualified stock options to executives and
members of management, at the discretion of the compensation committee of the
Board of Directors. Options vest in 25% increments on the second, third, fourth,
and fifth anniversaries of an individual grant. In the event of a change in
control, outstanding options will vest immediately. In October 1998, the
compensation committee of the Board of Directors approved a grant of 4,664,000
options at an exercise price of $1.71 per share. During 1999, an additional
214,000 options were granted at an exercise price of $2.74 per share and 70,000
options were forfeited. At December 31, 1999, a total of 4,808,000 options were
outstanding. Pursuant to the terms of the grant, options become exercisable only
in the event that the Company is sold, an initial public offering of the
Company's common stock results in the principal shareholders holding less than
10% of their original
46
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(11) STOCK OPTION PLANS (CONTINUED)
ownership, or other changes in control, as defined, occur. The number of options
that may become ultimately exercisable also depends upon the extent to which the
price per share obtained in the sale of the Company would exceed a minimum
selling price of $4.28 per share. All options have a term of ten years from date
of grant. The Company will accrue for compensation expense for the excess of the
estimated fair value of its common stock over the exercise price of the options
when and if a sale of the Company, at the prices necessary to result in
exercisable options under the grant, becomes imminent or likely. See note 2 for
a description of transactions affecting the 1998 Plan occurring subsequent to
December 31, 1999.
(12) REDEEMABLE PREFERRED STOCK
The following is a summary of the Company's preferred stock:
<TABLE>
<CAPTION>
SERIES B
SERIES A PREFERRED PREFERRED SERIES C PREFERRED
--------------------- -------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- -------- -------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.................. 1,400,000 $8,738 -- -- 3,661,200 1,952
Conversion of preferred stock................. (18,000) (112) -- -- -- --
Repurchase of preferred stock................. (1,382,000) (8,626) -- -- (3,400,880) (1,822)
---------- ------ -------- --------- ---------- ------
Balance at December 31, 1997.................. -- -- -- -- 260,320 130
Repurchase of preferred stock................. -- -- -- -- (260,320) (130)
---------- ------ -------- --------- ---------- ------
Balance at December 31, 1998.................. -- $ -- -- $ -- -- $ --
========== ====== ======== ========= ========== ======
</TABLE>
The Series A preferred stock, Series B preferred stock, and Series C
preferred stock not owned by management were purchased and retired in connection
with the 1997 recapitalization (see also note 10). The Series C preferred stock
owned by management was purchased and retired in 1998.
In conjunction with the issuance of the Series C preferred stock in 1996,
the Company issued warrants to purchase 233,790 shares of the Company's Class A
common stock. In association with the recapitalization, the Company repurchased
warrants to purchase 217,210 shares and contingent warrants to purchase 129,600
shares. There were no contingent warrants outstanding at December 31, 1997,
1998, and 1999. The remaining warrants for 16,580 shares were exercised
subsequent to December 31, 1999. (See note 2.)
(13) RELATED PARTY TRANSACTIONS
During 1998, certain major shareholders of the Company pledged 1,752,000
shares of the Company's common stock as collateral under various loan
agreements. Under the terms of the loan agreements, the Company is required, in
the event of default by the shareholders, to repurchase the pledged shares for
the lesser of (i) 100% of outstanding indebtedness plus accrued and unpaid
interest, or (ii) $3.0 million. The Company has classified $3.0 million of
equity as temporary equity for the value of common stock issued and subject to
put options under these arrangements. See note 2 which describes the Company
being released from this put obligation subsequent to December 31, 1999.
During 1997, the Company entered into an agreement with MJD Partners, L.P.
(Partners), at the time, a major shareholder of the Company. Under the terms of
the agreement, Partners provided senior
47
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(13) RELATED PARTY TRANSACTIONS (CONTINUED)
management and acquisition services to the Company. Partners was paid $1,020,000
under this agreement and this expense was classified with corporate expenses in
1997. This agreement was terminated on March 31, 1998, at which time $225,000
had been paid to Partners during 1998.
The Company has entered into financial advisory agreements 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. During 1999, 1998, and 1997, the Company paid $400,000,
$250,000 and $45,833, respectively, in such fees to the equity investors and
this expense was classified with corporate expenses. The agreements also provide
that the Company will reimburse the equity investors for travel relating to the
Company's Board of Directors meetings. During 1999 and 1998, the Company
reimbursed the equity investors $49,627 and $117,204, respectively, for travel
and other expenses. The advisory and consulting fees were increased to $500,000
per annum to be paid to each of the principal shareholders through December 31,
2006 in connection with the issuance and reacquisition of capital stock as
described in note 2.
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. The Company incurred expenses of
$132,831 and $103,306 in 1999 and 1998, respectively, related to this consulting
agreement. The agreement was paid by MJD Partners during 1997 and through March
of 1998. This agreement was terminated on January 20, 2000.
In 1997, a law firm, in which a partner of such law firm is a shareholder of
the Company, was paid a total of $1,070,132, of which $38,872 was for general
counsel services, which are classified with corporate expenses, $819,361 for
services related to financings, which have been recorded as debt issue costs and
equity issue costs, and $211,899 for new acquisitions, which have been
capitalized as direct costs of acquisitions of subsidiaries. In 1998, this same
law firm was paid $2,307,900, of which $289,156 was for general counsel
services, which are classified with corporate expenses, $1,228,902 for services
related to financings, which have been recorded as debt issue costs, and
$789,842 for new acquisitions, which have been capitalized as direct costs of
acquisitions of subsidiaries. In 1999, this same law firm was paid $336,835, of
which $295,084 was for general counsel services, which are classified with
corporate expenses and $41,751 for new acquisitions, which have been capitalized
as direct costs of acquisitions of subsidiaries.
See note 2 for related party transactions that occurred subsequent to
December 31, 1999.
(14) SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1999, 1998, and 1997, the Company paid
interest of $49,071,977, $24,111,997 and $8,301,646, respectively.
For the years ended December 31, 1999, 1998, and 1997, the Company paid
income taxes of $7,519,755, $3,585,977 and $529,352, respectively.
48
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(14) SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
In conjunction with the recapitalization in 1997, the Company issued
subordinated promissory notes for $3.5 million for the repurchase of the
Series A and Series C preferred stock. These subordinated promissory notes were
paid during 1998.
(15) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1999:
Revenue........................................ $32,828 35,496 39,347 39,868 147,539
Earnings (loss) before extraordinary item and
minority interest............................ (1,815) (2,945) (3,453) (20,727) (28,940)
Net loss....................................... (1,841) (2,958) (3,472) (20,769) (29,040)
======= ====== ====== ======= =======
1998:
Revenue........................................ 14,555 23,079 25,642 28,731 92,007
Earnings (loss) before extraordinary item and
minority interest............................ 634 (428) (1,517) (4,088) (5,399)
Net loss....................................... (1,912) (440) (1,548) (4,100) (8,000)
======= ====== ====== ======= =======
</TABLE>
In 1999, the Company recognized interest expense of approximately
$13.3 million attributable to the purchase of STE warrants discussed in note 9,
of which approximately $11.6 million was recognized during the fourth quarter.
In 1999, the Company recognized compensation expense of approximately
$3.4 million attributable to stock appreciation rights discussed in note 7, of
which approximately $2.9 million was recognized during the fourth quarter.
During the first quarter of 1998, the Company recognized a loss on the early
retirement of debt of approximately $4.3 million, which reduced net earnings by
approximately $2.5 million.
(16) 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 available-for-sale are carried at their fair value which
approximates $7.3 million at December 31, 1999 (see also note 5).
Non-current investments do not have a readily determinable fair value (not
publicly traded). On an annual basis, management determines a fair value of its
investments based on the financial performance of the investee, the fair value
of similar investments, and in certain instances, based on traditional valuation
models used by industry analysts. At December 31, 1999, the Company had
investments with a carrying value of approximately $36.2 million and estimated
fair value of approximately $57.8 million.
49
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(16) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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,
1999, the Company had long-term debt with a carrying value of approximately
$462.4 million and estimated fair value of approximately $447.6 million.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company entered into interest rate swaps to manage its exposure to
fluctuations in interest rates of its variable rate debt in 1998. The fair value
of these swaps was approximately $1.0 million at December 31, 1999. The fair
value indicates an estimated amount the Company would receive if the contracts
were cancelled or transferred to other parties.
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 assumption could significantly affect the estimates.
(17) MAJOR CUSTOMERS
Compensation for interstate access services is based on reimbursement of
costs and an allowed rate of return. This compensation is received from the NECA
in the form of monthly settlements. Such compensation amounted to 25.4%, 27.3%
and 30.0% of revenues in 1999, 1998, and 1997, respectively. The Company also
derives significant revenues from Bell Atlantic, principally from network access
and billing and collecting service. Such compensation amounted to 10.9%, 10.4%
and 16.3% of revenues in 1999, 1998, and 1997, respectively.
(18) REPORTABLE SEGMENTS
The Company has two reportable segments: incumbent local exchange carrier
(ILEC) operations and competitive local exchange carrier (CLEC) operations. The
ILEC operations provide local, long distance and other telecommunications
services to customers in rural communities in which competition currently does
not exist for local telecommunications services. The CLEC operations provide
local and long distance telecommunications services to customers in markets
outside of the Company's ILEC markets. The Company began its CLEC operations
during 1998, therefore, prior to 1998, the Company's business consisted of one
reportable segment.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on EBITDA. The Company generally accounts for intersegment
sales and transfers as if the sales or transfers were to third parties, that is,
at current market prices.
The Company's reportable segments are strategic business units that offer
similar telecommunications related products and services in different markets.
They are managed separately because each segment
50
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(18) REPORTABLE SEGMENTS (CONTINUED)
requires different marketing and operational strategies related to the providing
of local and long distance telecommunications services.
The Company utilizes the following information for purposes of making
decisions about allocating resources to a segment and assessing a segment's
performance:
<TABLE>
<CAPTION>
ILEC CLEC
OPERATIONS OPERATIONS TOTAL
---------- ---------- --------
<S> <C> <C> <C>
Year ended December 31, 1999:
Revenues from external customers.......... $135,890 11,649 147,539
Intersegment revenues..................... -- 2,633 2,633
Interest expense.......................... 50,463 722 51,185
Depreciation and amortization............. 30,876 756 31,632
Income tax (expense) benefit.............. (2,337) 7,952 5,615
EBITDA.................................... 68,049 (19,887) 48,162
Segment assets............................ 485,574 31,297 516,871
Expenditures for segment assets........... 28,293 15,216 43,509
</TABLE>
<TABLE>
<CAPTION>
ILEC CLEC
OPERATIONS OPERATIONS TOTAL
---------- ---------- --------
<S> <C> <C> <C>
Year ended December 31, 1998:
Revenues from external customers............ $ 88,946 3,061 92,007
Intersegment revenues....................... -- 516 516
Interest expense............................ 27,170 -- 27,170
Depreciation and amortization............... 20,034 55 20,089
Income tax benefit.......................... 267 1,845 2,112
Extraordinary items--loss on early
retirement of debt........................ 2,521 -- 2,521
EBITDA...................................... 42,099 (4,952) 37,147
Segment assets.............................. 436,838 5,576 442,414
Expenditures for segment assets............. 10,912 1,521 12,433
</TABLE>
51
<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998, AND 1997
(18) REPORTABLE SEGMENTS (CONTINUED)
A reconciliation of reportable segment amounts to the Company's consolidated
balances for the years ended December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Total revenue for reportable segments.................. $150,172 92,523
Elimination of intersegment revenue.................... (2,633) (516)
-------- -------
Total consolidated revenue......................... $147,539 92,007
======== =======
EBITDA to net loss:
EBITDA................................................. $ 48,162 37,147
Other components of EBITDA:
Depreciation and amortization........................ (31,632) (20,089)
Interest expense..................................... (51,185) (27,170)
Income tax expense................................... 5,615 2,112
-------- -------
Net loss........................................... $(29,040) (8,000)
======== =======
Assets:
Total assets for reportable segments................... $516,871 442,414
Consolidating and eliminating adjustments.............. (616) (302)
-------- -------
Consolidated total................................. $516,255 442,112
======== =======
</TABLE>
52
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 seven members of the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Daniel G. Bergstein....................... 56 Co-Founder, Director
Jack H. Thomas............................ 58 Co-Founder, Chairman of the Board of
Directors, President and Chief Executive
Officer
Eugene B. Johnson......................... 52 Co-Founder, Vice Chairman of the Board of
Directors, Executive Vice President,
Assistant Secretary
Walter E. Leach, Jr....................... 48 Senior Vice President, Chief Financial
Officer and Secretary
John P. Duda.............................. 52 President and Chief Executive Officer--
Telecom Group
G. Brady Buckley.......................... 40 President and Chief Executive Officer of
FairPoint Communications Corp.
Timothy W. Henry.......................... 44 Vice President of Finance, Treasurer and
Assistant Secretary
George Matelich........................... 43 Director
Frank K. Bynum, Jr........................ 37 Director
Anthony DiNovi............................ 37 Director
Kent R. Weldon............................ 32 Director
</TABLE>
DANIEL G. BERGSTEIN. Mr. Bergstein is a founder and has been a Director of
the Company since 1991. Mr. Bergstein served as Chairman of the Board of
Directors of the Company from 1991 until August 1998. Since 1988, Mr. Bergstein
has been a senior partner in the New York office of the international law firm
Paul, Hastings, Janofsky & Walker LLP, where he is the Chairman of the Firm's
National Telecommunications Practice. Mr. Bergstein is a corporate and
securities lawyer, specializing in mergers and acquisitions and corporate
finance transactions.
JACK H. THOMAS. Mr. Thomas is a founder and has been a Director of the
Company since 1991. He has acted as President and Chief Executive Officer since
1993. Mr. Thomas has served as Chairman of the Board of Directors of the Company
since August 1998. 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
53
<PAGE>
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 during the 1976-1982
period.
EUGENE B. JOHNSON. Mr. Johnson is a founder and has been a Director of the
Company since 1991. Mr. Johnson served as Senior Vice President of the Company
from 1993 to 1998 and has served as Executive Vice President since
February 1998. Mr. Johnson has served as Vice Chairman of the Company since
August 1998. 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 a 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.
JOHN P. DUDA. Mr. Duda has served as Chief Operating Officer of the Company
since January 1994 and President and Chief Executive Officer of the Company's
Telecom Group since August 1998. 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 Midsize Company committees. He
also serves on OPASTCO's Separations and Access Committee.
G. BRADY BUCKLEY. Mr. Buckley has served as President and Chief Executive
Officer of FairPoint Communications Corp. since July 1998. From 1996 to 1998,
Mr. Buckley served as President of American Telco, Inc., a Houston, Texas based
telecommunications firm that was the first company to provide combined local and
long distance phone service in Texas. From 1992 to 1996, Mr. Buckley was Vice
President of Worldcom and responsible for all New England operations including
sales, marketing, finance, operations, and administration. From 1988 to 1992,
Mr. Buckley was Vice President of First Phone of New England, a start-up company
that provided long distance telecommunications service to business firms in the
Northeast. From 1982 to 1987, Mr. Buckley served in several sales and management
positions at Sprint.
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.
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, with
which he has been associated since 1985.
54
<PAGE>
Mr. Matelich serves on the Boards of Directors of GlobeNet Communications Group
Limited and Humphreys, Inc. Mr. Matelich is also a Trustee of the University of
Puget Sound.
FRANK K. BYNUM, JR. Mr. Bynum has served as a Director of the Company since
May 1998. He is also a Managing Director of Kelso. Mr. Bynum joined Kelso in
1987 and has held positions of investing responsibility at Kelso prior to
becoming a Managing Director. Mr. Bynum is a director of CDT Holdings, plc,
Citation Corporation, Cygnus Publishing, Inc., HCI Direct, Inc., iXL
Enterprises, Inc. and 21st Century Newspapers, Inc. Mr. Bynum received a B.A. in
History from the University of Virginia.
ANTHONY DINOVI. Mr. DiNovi has served as a Director of the Company since
January 2000. He has served as a Managing Director of Thomas H. Lee Partners,
L.P. since 1988. Prior to joining Thomas H. Lee Partners, L.P., Mr. DiNovi was
in the Corporate Finance Department at Wertheim Schroder & Co., Inc. Mr. DiNovi
is a director of Big Flower Holdings, Inc., CelPage, Inc., Columbine JDS
Systems, Inc., Eye Care Centers of America Inc., Fisher Scientific
International, Inc., LiveWire Systems, LLC, ProcureNet, Inc., Safelite Glass
Corp. and Tibbar, LLC. Mr. DiNovi received an A.B. in Social Studies from
Harvard College and a M.B.A. from the Harvard Graduate School of Business
Administration.
KENT R. WELDON. Mr. Weldon has served as a Director of the Company since
January 2000. He is a Vice President of Thomas H. Lee Partners, L.P. Mr. Weldon
worked at the firm from 1991 to 1993 and rejoined it in 1995. From 1989 to 1991,
Mr. Weldon worked at Morgan Stanley & Co. Incorporated in the Corporate Finance
Department. Mr. Weldon is a director of Fisher Scientific International, Inc.,
and Syratech Corporation. Mr. Weldon received a B.A. in Economics and Arts and
Letters Program for Administration from the University of Notre Dame and an
M.B.A. from the Harvard Graduate School of Business Administration.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued for services
rendered to the Company or its subsidiaries in all capacities, for the year
ended December 31, 1999, by the Chief Executive Officer and each of the other
four most highly-compensated officers of the Company employed as of
December 31, 1999 (the "Named Executive Officers").
55
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(1)
ANNUAL COMPENSATION ------------
---------------------------------- NUMBER OF
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
- --------------------------- -------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jack H. Thomas............... 1999 $330,000 $180,000 $ 96,470 -- --
Chief Executive Officer and 1998 309,000 150,000 86,851 1,300,000 --
President 1997 300,000 82,500 69,128 -- --
Eugene B. Johnson............ 1999 $264,000 $132,000 $ 76,354 -- --
Executive Vice President 1998 240,000 120,000 52,525 1,195,000 --
and Assistant Secretary 1997 240,000 62,000 29,535 -- --
John P. Duda................. 1999 $150,000 $ 75,000 $ 61,265 -- --
President and Chief 1998 140,000 49,000 41,775 410,000 --
Executive Officer--Telecom 1997 131,000 31,000 24,018 -- --
Group
Walter E. Leach, Jr.......... 1999 $150,000 $ 80,000 $ 40,806 -- --
Senior Vice President, 1998 130,000 62,942 34,255 650,000 --
Chief Financial Officer and 1997 108,000 32,400 15,598 -- --
Secretary
G. Brady Buckley............. 1999 $267,500 $240,000 $108,055 300,000(3) --
CEO and President-- 1998(2) 125,000 90,000 0 -- --
FairPoint Communications, 1997 -- --
Inc
</TABLE>
- ------------------------
(1) Share numbers are pro forma for the Stock Split.
(2) Represents six months of compensation.
(3) Represents options to purchase common stock of FairPoint under the FairPoint
Plan. These will be converted to options to purchase Class A Common Stock of
MJD in April of 2000.
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 1,136,800 shares of the Class A 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 is 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
December 31, 1999, the Board of Directors had granted
56
<PAGE>
options to purchase at $0.25 per share a total of 852,800 shares of the Class A
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.
In connection with the Equity Financing, a total of 260,340 options were
exercised and the underlying shares were sold.
1998 STOCK INCENTIVE PLAN
In August 1998, the Company adopted the MJD Communications, Inc. Stock
Incentive Plan (the "1998 Plan"). The 1998 Plan provides for grants to members
of management of up to 5,124,400 nonqualified options to purchase Class A Common
Stock, at the discretion of the compensation committee of the Board of
Directors. Options vest in 25% increments on the second, third, fourth, and
fifth anniversaries of an individual grant. In the event of a change in control,
outstanding options will vest immediately. In October 1998, the compensation
committee of the Board of Directors approved a grant of 4,664,000 options at an
exercise price of $1.71 per share after giving pro forma effect to the Stock
Split. During 1999, an additional 214,000 options were granted at an exercise
price of $2.74 per share and 70,000 options were forfeited. At December 31,
1999, a total of 4,808,000 options were outstanding after giving pro forma
effect to the Stock Split. Pursuant to the terms of the grant, options become
exercisable only in the event that the Company is sold, an initial public
offering of the Company's common stock occurs, or other changes in control, as
defined, occur. The number of options that may ultimately become exercisable
also depends upon the extent to which the price per share obtained in the sale
of the Company would exceed a minimum selling price of $4.28 per share. Options
have a term of ten years from date of grant. The Company will accrue as a
compensation expense the excess of the estimated fair value of its common stock
over the exercise price of the options when and if a sale of the Company, at the
prices necessary to result in exercisable options under the grant, becomes
imminent or likely.
In connection with the Equity Financing, 40,600 options were exercised and
the underlying shares were sold.
In December 1998, FairPoint adopted the FairPoint Communications Corp. Stock
Incentive Plan (the "FairPoint Plan") for its employees. Under the FairPoint
Plan, participating employees may be granted options to purchase common stock of
FairPoint at exercise prices not less than the fair value of FairPoint common
stock at the date of the grant. The FairPoint Plan authorizes grants of options
to purchase up to 1,000,000 shares of authorized, but unissued common stock.
Options vest in 25% increments on the second, third, fourth, and fifth
anniversaries of an individual grant. In the event of a change in control,
outstanding options will vest immediately. Shares issued to employees under the
FairPoint Plan are subject to a call option by FairPoint. Under the call option,
FairPoint may repurchase those shares held by terminating employees at fair
value if the shares were held by the employee for a minimum holding period of
not less than six months. The FairPoint Plan also provides for the reacquisition
of common shares by FairPoint in the event of death or disability of the
option-holder. During 1999, the compensation committee approved grants of
970,500 options. Of these grants, 85,000 options were forfeited. No options were
granted under the FairPoint Plan during fiscal year 1998. All options granted in
1999 under the FairPoint Plan had an exercise price of $0.50.
In February 2000, the Board approved a conversion of all of the FairPoint
options to MJD options. The conversion, which is expected to be completed in
April, 2000, will result in 885,500 options to purchase common stock of
FairPoint being converted into an aggregate of 1,618,820 options to purchase
Class A Common Stock with an exercise price of $3.28 per share. Upon completion
of the conversion, the FairPoint Plan will be terminated.
57
<PAGE>
WARRANTS
Certain members of management were issued warrants to purchase Class A
Common Stock in connection with their purchases of shares of Series C Preferred
Stock of the Company in 1996. The Company has since redeemed all of the
outstanding Series C Preferred Stock. The warrants were exercisable into 16,580
shares of Common Stock at an exercise price of $0.01 per share. On January 20,
2000, the warrants were exercised and the underlying shares were sold in
connection with the Equity Financing.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table sets forth the information with respect to the Named
Executive Officers concerning the exercise of options during fiscal year 1999,
the number of securities underlying options at the 1999 year end and the year
end value of all unexercised in-the-money options held by such individuals
(after giving pro forma effect to the Stock Split).
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT FISCAL
ACQUIRED ON VALUE REALIZED FISCAL YEAR-END (#) YEAR-END ($)
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---- ------------ -------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Jack H. Thomas........... -- -- 1,586,260/1,300,000 $18,508,879/14,825,200
Eugene B. Johnson........ -- -- 1,412,320/1,195,000 16,424,958/13,627,780
Walter E. Leach, Jr...... -- -- 795,160/650,000 10,971,431/7,412,600
John P. Duda............. -- -- 626,500/410,000 9,157,452/4,675,640
G. Brady Buckley......... -- -- 300,000/300,000(2) 7,194,000/7,194,000
</TABLE>
- ------------------------
(1) Represents the difference between the exercise price and the fair market
value of the Company's Class A Common Stock at December 31, 1999.
(2) Represents options to purchase common stock of FairPoint under the FairPoint
Plan. These will be converted to options to purchase Class A Common Stock of
MJD in April of 2000.
In connection with the Equity Financing, 12,440 warrants and 300,940 options
to purchase Class A Common Stock were exercised and the underlying shares were
sold for aggregate proceeds of $3,975,836. In connection with this transaction,
the Board approved the acceleration of the vesting and exercise of 40,600
options owned by Mr. Leach. In addition, Mr. Leach and Mr. Duda also received an
aggregate of $1,165,000 from certain stockholders of the Company in satisfaction
of a portion of such stockholders' stock appreciation rights obligations to
Messrs. Duda and Leach.
EMPLOYMENT AGREEMENTS
In January 2000, the Company entered into employment agreements (the
"Employment Agreements") with each of John P. Duda, Jack H. Thomas, Eugene B.
Johnson and Walter E. Leach, Jr. (each an "Executive" and, collectively, the
"Executives"). Each of the Employment Agreements provides for an employment
period from January 20, 2000 until December 31, 2003 and provides that upon the
termination of the Executive's employment due to a Change of Control (as defined
below), 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. For
purposes of the previous sentence, a "Change of Control" shall be deemed to have
occurred if: (a) certain stockholders of the Company 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
58
<PAGE>
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. 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 or
by Executive without good reason, such Executive is not entitled to any benefits
pursuant to the Employment Agreements.
ITEM 12. SECURITY OWNERSHIP AND BENEFICIAL MANAGEMENT
The following table sets forth information regarding beneficial ownership of
the Company's Class A Common Stock as of March 15, 2000 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 Class A 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)..................................... 2,155,140 18.7%
Jack H. Thomas (3).......................................... 1,757,600 14.9%
Eugene B. Johnson (4)....................................... 640,380 5.5%
John P. Duda (5)............................................ 95,060 0.8%
G. Brady Buckley............................................ 7,640 0.1%
Walter E. Leach, Jr. (6).................................... 0.0 0.0%
George E. Matelich (7)...................................... 5,655,768 49.1%
Frank K. Bynum, Jr. (7)..................................... 5,655,768 49.1%
Anthony DiNovi (1).......................................... 0.0 0.0%
Kent R. Weldon (1).......................................... 0.0 0.0%
All Executive Officers and Directors as a group (10 10,311,588 58.0%
stockholders).............................................
5% Stockholders:
Kelso Investment Associates V, L.P. and Kelso Equity 5,655,768 49.1%
Partners V, L.P. (1)(7)...................................
320 Park Avenue, 24(th) 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 11,523,308
shares of Class A Common Stock outstanding as of February 29, 2000
As of February 29, 2000, THL owned 21,461,720 shares of Series D Preferred
Stock and Kelso Investment Associates V, L.P. ("KIAV") and Kelso Equity
Partners V, L.P. ("KEPV") owned 11,289,356 and 1,254,372 shares of Class B
Common Stock, respectively. Each share of Series D Preferred Stock and each
share of Class B Common Stock will be automatically converted into one share
of Class A Common Stock upon the receipt of all required regulatory
approvals. The Company does not expect to receive all such regulatory
approvals within the next 60 days.
(2) Includes 2,155,140 shares owned by JED Communications Associates, Inc., a
corporation owned 100% by Mr. Bergstein and his immediate family.
59
<PAGE>
(3) Includes 284,200 shares of Class A Common Stock issuable upon exercise of
options that are either currently exercisable or exercisable during the next
60 days. Does not include 1,300,000 shares of Class A Common Stock issuable
upon exercise of options that are not currently exercisable or exercisable
during the next 60 days.
(4) Includes 213,200 shares of Class A Common Stock issuable upon exercise of
options that are either currently exercisable or exercisable during the next
60 days. Does not include 1,195,000 shares of Class A Common Stock issuable
upon exercise of options that are not currently exercisable or exercisable
during the next 60 days.
(5) Includes 95,060 shares of Class A Common Stock issuable upon exercise of
options that are either currently exercisable or exercisable during the next
60 days. Does not include 410,000 shares of Class A Common Stock issuable
upon exercise of options that are not exercisable during the next 60 days.
(6) Does not include 609,400 shares of Class A Common Stock issuable upon
exercise of options that are not currently exercisable of exercisable during
the next 60 days.
(7) Includes 5,138,370 shares of Class A Common Stock owned by KIAV and 517,398
Class A shares of Common Stock owned by KEPV. KIAV and KEPV, due to their
common control, could be deemed to beneficially own each other's 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, Frank K. Bynum, Jr. and Philip E. Berney may be deemed to
share beneficial ownership of shares of Class A 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, Bynum and Berney 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FINANCIAL ADVISORY AGREEMENTS
In connection with the Equity Financing, the Company entered into a
Management Services Agreement with THL Equity Advisors IV, LLC, ("THL Advisors")
dated as of January 20, 2000 and an Amended and Restated Financial Advisory
Agreement dated as of January 20, 2000 with Kelso, pursuant to which THL
Advisors and Kelso provide certain consulting and advisory services related, but
not limited to, equity financings and strategic planning. Pursuant to these
agreements, the Company pays to each of THL Advisors and Kelso annual advisory
fees of $500,000 payable on a quarterly basis until December 31, 2006. In
connection with the Equity Financing, the Company terminated its financial
advisory agreement with Carousel and the original financial advisory agreement
with Kelso. The Company paid advisory fees to Carousel and Kelso of $200,000 and
$200,000 each in 1999.
CONSULTING AGREEMENT
On January 20, 2000, the Company terminated a consulting agreement dated as
of July 31, 1997 by and between the Company and an entity controlled by Daniel
G. Bergstein pursuant to which Mr. Bergstein agreed to provide general
consulting and advice to the Company as reasonably requested from time to time.
During 1999, the Company paid consulting fees under the consulting agreement of
$132,831.
60
<PAGE>
LEGAL SERVICES
Daniel G. Bergstein, a senior partner of Paul, Hastings, Janofsky & Walker
LLP ("Paul Hastings"), is a Director of the Company and a significant
stockholder. Paul Hastings regularly provides legal services to the Company. For
the year ended December 31, 1999, Paul Hastings was paid approximately $336,835
by the Company for legal services.
STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
In connection with the Equity Financing, the Company and its stockholders
entered into a Stockholders Agreement dated as of January 4, 2000 (the
"Stockholders Agreement") which contains certain provisions, including but not
limited to: (i) the designation of members to the Board of Directors of the
Company (including, initially, two members to be designated by THL, two members
by Kelso and upon the receipt of all required regulatory approvals, the
remaining members to be designated jointly by THL and Kelso), (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 THL and Kelso in order for the Company to incur
debt in excess of $5 million.
The Company and its stockholders entered into a Registration Rights
Agreement dated as of January 20, 2000 (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
Class A 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.
In connection with the execution of the Stockholders' Agreement and the
Registration Rights Agreement, the Company terminated its previous Stockholders'
Agreement and Registration Rights Agreement, each dated July 31, 1997.
61
<PAGE>
PURCHASE OF CLASS A COMMON STOCK BY MANAGEMENT
In January 2000, 100,160 shares of the Company's Class A Common Stock were
purchased by certain members of management for $1,313,749 as follows:
<TABLE>
<CAPTION>
AGGREGATE
PER SHARE NUMBER PURCHASE
NAME OF MANAGEMENT PERSONNEL PRICE(A) OF SHARES (B) PRICE
- ---------------------------- --------- ------------- -----------
<S> <C> <C> <C>
Richard Blumhagen......................................... $13.1165 800 $ 10,493.20
Brady Buckley............................................. $13.1165 7,640 $100,210.06
Ryan Cure................................................. $13.1165 1,600 $ 20,986.40
Whit Edwards.............................................. $13.1165 8,000 $104,932.00
Patrick Eudy.............................................. $13.1165 5,700 $ 74,764.05
Dan Fine.................................................. $13.1165 1,600 $ 20,986.40
Leon Frazier.............................................. $13.1165 1,100 $ 14,428.15
Ross Fritz................................................ $13.1165 800 $ 10,493.20
Robert Gniadek............................................ $13.1165 800 $ 10,493.20
Mike Harrington........................................... $13.1165 800 $ 10,493.20
Timothy Henry............................................. $13.1165 800 $ 10,493.20
Lisa Hood................................................. $13.1165 1,500 $ 19,674.75
Tom Iachetta.............................................. $13.1165 800 $ 10,493.20
Steve Lagasee............................................. $13.1165 800 $ 10,493.20
Jack Morfield............................................. $13.1165 2,000 $ 26,233.00
Patrick L. Morse.......................................... $13.1165 2,000 $ 26,233.00
Peter Nixon............................................... $13.1165 3,200 $ 41,972.80
Jeff Tousa................................................ $13.1165 2,000 $ 26,233.00
Dana Twombly.............................................. $13.1165 22,000 $288,563.00
Dan Yamin................................................. $13.1165 800 $ 10,493.20
Daren Yamin............................................... $13.1165 800 $ 10,493.20
Neil Torpey............................................... $13.1165 34,620 $454,093.23
</TABLE>
- ------------------------
(a) The price per share has been adjusted on a pro forma basis to reflect the
Stock Split.
(b) The number of shares have been adjusted on a pro forma basis to reflect the
Stock Split.
62
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
MJD COMMUNICATIONS, INC.
INDEPENDENT AUDITORS' REPORT AND
SCHEDULE
FORM 10-K SECURITIES AND EXCHANGE COMMISSION
DECEMBER 31, 1999, 1998, AND 1997
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MJD Communications, Inc.:
Under the date of March 1, 2000, we reported on the consolidated balance
sheets of MJD Communications, Inc. and subsidiaries as of December 31, 1999 and
1998 and the related consolidated statements of operations, stockholders' equity
(deficit), comprehensive loss and cash flows for each of the years in the
three-year period ended December 31, 1999. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule II. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this consolidated financial statement
schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
March 1, 2000
Lincoln, Nebraska
63
<PAGE>
SCHEDULE II
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ADDITIONS CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF DUE TO COSTS AND FROM ALLOWANCE END OF
DESCRIPTION YEAR ACQUISITIONS EXPENSES (NOTE) YEAR
- ----------- ------------ ------------ ---------- -------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999,
allowance deducted from asset
accounts, allowance for doubtful
receivables........................ $704 70 634 487 921
Year ended December 31, 1998,
allowance deducted from asset
accounts, allowance for doubtful
receivables........................ $ 49 621 390 356 704
Year ended December 31, 1997,
allowance deducted from asset
accounts, allowance for doubtful
receivables........................ $ 58 -- -- 9 49
</TABLE>
- ------------------------
Note: Customers' accounts written-off, net of recoveries.
See accompanying independent auditors' report.
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
MJD COMMUNICATIONS, INC.
By: /s/ WALTER E. LEACH, JR.
-----------------------------------------
Walter E. Leach, Jr.
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND SECRETARY
</TABLE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DANIEL G. BERGSTEIN
------------------------------------------- Director March 30, 2000
Daniel G. Bergstein
/s/ JACK H. THOMAS Director, Chairman of the
------------------------------------------- Board of Directors, and March 30, 2000
Jack H. Thomas Chief Executive Officer
Director, Vice Chairman of the
/s/ EUGENE B. JOHNSON Board of Directors,
------------------------------------------- Executive Vice President and March 30, 2000
Eugene B. Johnson Assistant Secretary
/s/ GEORGE E. MATELICH
------------------------------------------- Director March 30, 2000
George E. Matelich
/s/ ANTHONY DINOVI
------------------------------------------- Director March 30, 2000
Anthony DiNovi
/s/ KENT R. WELDON
------------------------------------------- Director March 30, 2000
Kent R. Weldon
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ FRANK K. BYNUM, JR.
------------------------------------------- Director March 30, 2000
Frank K. Bynum, Jr.
Senior Vice President, Chief
/s/ WALTER E. LEACH JR. Financial Officer and
------------------------------------------- Secretary March 30, 2000
Walter E. Leach Jr. (Principal Financial
Officer)
/s/ LISA R. HOOD
------------------------------------------- Controller (Principal March 30, 2000
Lisa R. Hood Accounting Officer)
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------- ------------------------------------------------------------ --------
<S> <C> <C>
2.1 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*..............................
2.2 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.*.......
2.3 Agreement and Plan of Merger dated as of March 27, 1998 by
and among MJD Ventures, Inc., Utilities Acquisition Corp.
and Utilities, Inc.*........................................
2.4 Agreement and Plan of Merger dated as of August 6, 1996
among MJD Holdings Corp., C&E Acquisitions Corp. and
Chautauqua and Erie Telephone Corporation*..................
2.5 Stock Purchase Agreement dated as of September 24, 1996
among MJD Holdings Corp., Kadoka Telephone Co., Bruce G.
Conlee and Virginia L. Conlee*..............................
2.6 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*.......................................
2.7 Agreement and Plan of Merger dated as of September 2, 1997
among MJD Holdings Corp., Taconic Acquisition Corp. and
Taconic Telephone Corp.*....................................
2.8 Agreement and Plan of Merger, dated December 31, 1998 among
MJD Ventures, Inc., Ellensburg Acquisition Corp. and
Ellensburg Telephone Company*...............................
2.9 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*.................................
2.10 Stock Purchase Agreement dated as of October 16, 1998 among
MJD Services Corp., Carla J. Brownlee and Ravenswood
Communications, Inc. .......................................
2.11 Stock Purchase Agreement dated as of December 24, 1998 by
and among MJD Services Corp., Armour Independent Telephone
Co., Bridgewater-Canistota Independent Telephone Co. and the
other parties thereto.......................................
2.12 Stock Purchase Agreement dated as of December 24, 1998 by
and among MJD Services Corp., Union Telephone Company of
Hartford, Union TelNET, KM Satellite, Inc. and the other
parties thereto.............................................
2.13 Stock Purchase Agreement dated as of December 24, 1998 by
and among MJD Services Corp., WMW Cable TV Co. and the other
parties thereto.............................................
2.14 Stock Purchase Agreement dated as of January 12, 1999 by and
among MJD Services Corp., Cambridge Telephone Company and
Yates City Telephone Company................................
2.15 Stock Purchase Agreement dated as of February 16, 1999 by
and among MJD Ventures, Inc., Columbus Grove Telephone
Company and the other parties thereto.......................
2.16 Stock Purchase Agreement dated as of June 17, 1999 by and
among MJD Ventures, Inc., the Orwell Telephone Company and
the other parties thereto...................................
2.17 Stock Purchase Agreement dated as of December 10, 1999 by
and among MJD Ventures, Inc., Peoples Mutual Telephone
Company and the other parties thereto.......................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------- ------------------------------------------------------------ --------
<S> <C> <C>
2.18 Stock Purchase Agreement dated as of December 23, 1999 by
and among MJD Ventures, Inc., TPG Communications, Inc., TPG
Partners, L.P., TPG Parallel I, L.P., J. Milton Lewis and
Robert DiPauli..............................................
3.1 Fifth Amended and Restated Certificate of Incorporation of
the Company.................................................
3.2 Amended and Restated By-Laws of the Company*................
3.3 Certificate of Designation of Series D Preferred Stock 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*.......
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 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.*.........................................
10.11 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.*.........
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------- ------------------------------------------------------------ --------
<S> <C> <C>
10.12 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.*.........
10.13 Share Exchange Agreement, dated as of July 31, 1997 between
the Company and MJD Partners, L.P.*.........................
10.14 Contribution Agreement, dated as of July 31, 1997 between
Meyer Haberman, Jack H. Thomas, Eugene B. Johnson and Bugger
Associates, Inc. and MJD Partners, L.P.*....................
10.15 Contribution Agreement, dated as of July 31, 1997 between
MJD Partners, L.P. and the Company*.........................
10.16 Amended and Restated Class A Voting Common Stock Purchase
Warrants of the Company*....................................
10.17 Consulting Agreement, dated as of July 31, 1997 between MJD
Partners, Inc. and Bugger Associates, Inc.*.................
10.18 Severance Agreement, dated as of July 31, 1997 between ST
Enterprises, LTD and John P. Duda*..........................
10.19 Severance Agreement, dated as of July 31, 1997 among the
Company, MJD Partners, Inc. and Eugene B. Johnson*..........
10.20 Severance Agreement, dated as of July 31, 1997 between the
Company and Walter E. Leach, Jr.*...........................
10.21 Severance Agreement, dated as of July 31, 1997 among the
Company, MJD Partners, Inc. and Jack H. Thomas*.............
10.22 Amendment to Credit Agreement dated as of July 30, 1998,
among the Company, various lending institutions, NationsBanc
of Texas, N.A. and Bankers Trust
Company*....................................................
10.23 Form of Purchase Agreement and Subordination Agreement
between Bankers Trust Company and the Company*..............
10.24 Stock Purchase Agreement dated as of January 4, 2000 by and
among the Company, Thomas H. Lee Equity IV, L.P., Kelso
Investment Associates V, Kelso Equity Partners V, L.P.,
Carousel Capital Partners, L.P. and the other parties
thereto.*...................................................
10.25 Stockholders' Agreement dated as of January 20, 2000 of the
Company.....................................................
10.26 Registration Rights Agreement dated as of January 20, 2000
of the Company..............................................
10.27 Management Services Agreement dated as of January 20, 2000
by and between the Company and THL Equity Advisors IV,
LLC. .......................................................
10.28 Amended and Restated Financial Advisory Agreement dated as
of January 20, 2000 by and between the Company and Kelso &
Company, L.P. ..............................................
10.29 Non-Competition, Non-Solicitation and Non-Disclosure
Agreement dated as of January 20, 2000 by and between the
Company and JED Communications Associates, Inc. ............
10.30 Non-Competition, Non-Solicitation and Non-Disclosure
Agreement dated as of January 20, 2000 by and between the
Company and Daniel G. Bergstein.............................
10.31 Non-Competition, Non-Solicitation and Non-Disclosure
Agreement dated as of January 20, 2000 by and between the
Company and Meyer Haberman..................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------- ------------------------------------------------------------ --------
<S> <C> <C>
10.32 Subscription Agreement dated as of January 31, 2000 by and
between the Company and each of the Subscribers party
thereto.....................................................
10.33 Employment Agreement dated as of January 20, 2000 by and
between the Company and Jack Thomas.........................
10.34 Employment Agreement dated as of January 20, 2000 by and
between the Company and Eugene Johnson......................
10.35 Employment Agreement dated as of January 20, 2000 by and
between the Company and John P. Duda........................
10.36 Employment Agreement dated as of January 20, 2000 by and
between the Company and Walter E. Leach, Jr. ...............
10.37 Institutional Stock Purchase Agreement dated as of January
20, 2000 by and among the Company and the other parties
thereto.....................................................
10.38 Institutional Stockholders Agreement dated as of January 20,
2000 by and among the Company and the other parties
thereto.....................................................
12 Ratio of Earnings to fixed charges calculation (filed
herewith)...................................................
21 Subsidiaries of the Company.................................
27 Financial Data Schedule.....................................
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 2.10
STOCK PURCHASE AGREEMENT
among
MJD SERVICES CORP.,
CARLA J. BROWNLEE,
and
RAVENSWOOD COMMUNICATIONS, INC.
dated as of October 16, 1998
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of this Agreement but is attached for
convenience only.
ARTICLE I.
PURCHASE OF STOCK......................................................2
Section 1.1 Purchase and Sale. ...........................2
Section 1.2 Purchase Price.................................2
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE SELLER...........................2
Section 2.1 Corporate Organization.........................2
Section 2.2 Authorization..................................3
Section 2.3 No Violation...................................3
Section 2.4 Affiliates and Investments.....................4
Section 2.5 Stock Record Book..............................4
Section 2.6 Corporate Books................................4
Section 2.7 Title to Stock.................................5
Section 2.8 Options and Rights.............................5
Section 2.9 Financial Statements...........................5
Section 2.10 Employees......................................6
Section 2.11 Absence of Certain Changes.....................7
Section 2.12 Contracts......................................8
(a) Generally......................................8
(b) Compliance.....................................9
Section 2.13 True and Complete Copies.......................9
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
-i-
<PAGE>
(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......................................19
(c) Transportation................................19
(d) Notification of Release.......................19
(e) Liens.........................................19
(f) Site Assessments..............................19
Section 2.22 Capital Expenditures and Investments
...............................................................20
Section 2.23 Dealings with Affiliates......................20
Section 2.24 Insurance.....................................20
Section 2.25 Commissions...................................20
Section 2.26 Permits and Reports...........................21
Section 2.27 Absence of Undisclosed Liabilities............21
Section 2.28 Disclosure....................................22
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.......................22
Section 3.1 Corporate Organization........................22
Section 3.2 Authorization.................................23
Section 3.3 No Violation..................................23
Section 3.4 Investment Intent.............................23
Section 3.5 Commissions...................................23
Section 3.6 Litigation....................................23
Section 3.7 Disclosure....................................24
ARTICLE IV.
COVENANTS OF THE SELLER AND THE COMPANY...............................24
Section 4.1 Regular Course of Business....................24
(a) Generally.....................................24
(b) Compensation..................................24
(c) Insurance.....................................25
(d) Claims........................................25
(e) Supplement....................................25
-ii-
<PAGE>
Section 4.2 Amendments....................................25
Section 4.3 Capital Changes...............................25
Section 4.4 Dividends.....................................25
Section 4.5 Capital Expenditures..........................25
Section 4.6 Borrowing.....................................25
Section 4.7 Property......................................26
Section 4.8 Other Commitments.............................26
Section 4.9 Financial Information.........................26
Section 4.10 Consents and Authorizations...................26
Section 4.11 Access........................................26
Section 4.12 Notice of Transfer............................26
Section 4.13 Payment of Stamp Tax..........................27
Section 4.14 Disclosure....................................27
Section 4.15 Cooperation with Purchaser....................27
Section 4.16 Payment of Estate Tax Liability...............27
Section 4.17 Purchase Price Escrow Agreement...............27
ARTICLE V.
COVENANTS OF THE PURCHASER............................................28
Section 5.1 Consents and Authorizations...................28
Section 5.2 Insurance Continuation........................28
Section 5.3 Filings.......................................28
Section 5.4 Notice of Transfer............................28
Section 5.5 Cooperation with Seller and Company...........28
Section 5.6 Supplement....................................29
ARTICLE VI.
OTHER AGREEMENTS......................................................29
Section 6.1 Agreement to Defend...........................29
Section 6.2 Further Assurances............................29
Section 6.3 Consents......................................29
Section 6.4 No Solicitation or Negotiation................30
Section 6.5 No Termination of the Obligations by
Subsequent Dissolution..........................................30
Section 6.6 Public Announcements..........................30
Section 6.7 Records and Information.......................30
(a) Retention of Records. .......................30
(b) Access to Information. ......................31
(c) Provisions of Corporate Records. ............31
(d) Witnesses.....................................31
Section 6.8 Insurance Policies and Claims Administration..32
(a) Insurance Coverage Prior to the Closing Date..32
-iii-
<PAGE>
(b) Insurance Coverage After the Closing Date.....32
Section 6.9 Other Tax Matters.............................33
(a) Tax Returns...................................33
(b) Information...................................33
(c) Amended Returns...............................33
ARTICLE VII.
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER........................34
Section 7.1 Representations and Warranties; Covenants
and Deliveries..................................................34
Section 7.2 Consents and Approvals........................35
Section 7.3 No Material Adverse Change....................35
Section 7.4 No Proceeding or Litigation...................35
Section 7.5 Secretary's Certificate.......................35
Section 7.6 Certificates of Good Standing.................36
Section 7.7 Opinion of Seller's Counsel...................36
Section 7.8 Resignations..................................36
Section 7.9 Other Documents...............................36
Section 7.10 Liens.........................................36
Section 7.11 Delivery of Minute Books and Investment
Certificates....................................................36
Section 7.12 Delivery of Unaudited Financial Statements....36
ARTICLE VIII.
CONDITIONS TO THE OBLIGATIONS OF THE SELLER...........................36
Section 8.1 Representations and Warranties................36
Section 8.2 Consents and Approvals........................37
Section 8.3 No Proceeding or Litigation...................37
Section 8.4 Secretary's Certificate.......................37
Section 8.5 Opinion of Purchaser's Counsel................38
Section 8.6 Certificates of Good Standing.................38
Section 8.7 Other Documents...............................38
ARTICLE IX.
CLOSING...............................................................38
Section 9.1 Closing.......................................38
Section 9.2 Closing Date Payment and Receipt of Shares....38
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ARTICLE X.
TERMINATION AND ABANDONMENT...........................................40
Section 10.1 Methods of Termination........................40
(a) Mutual Consent................................40
(b) Seller's Failure to Perform...................40
(c) Purchaser's Failure to Perform................40
(d) Failure to Close by July 31, 1999.............40
(e) Material Adverse Change.......................40
(f) Remedies......................................40
Section 10.2 Procedure Upon Termination....................41
(a) Return of Records.............................41
(b) Confidentiality...............................41
(c) Breakup Fee...................................41
Section 10.3 Exclusive Remedy. ...........................42
ARTICLE XI.
SURVIVAL OF TERMS; INDEMNIFICATION....................................42
Section 11.1 Survival; Limitations.........................42
Section 11.2 Escrow of Liquid Assets.......................43
Section 11.3 Indemnification by the Seller.................43
(a) Misrepresentation or Breach...................43
(b) Taxes.........................................43
(c) Third Party Claims. .........................43
(d) Related Expenses..............................44
Section 11.4 Indemnification by the Purchaser..............44
(a) Misrepresentation or Breach...................44
(b) Taxes.........................................44
(c) Third Party Claims............................44
(d) Related Expenses..............................44
Section 11.5 Third Party Claims............................44
(a) Generally.....................................44
(b) Counsel.......................................46
Section 11.6 Other Claims..................................46
Section 11.7 Continued Liability for Indemnity Claims......48
Section 11.8 Exclusive Remedy..............................48
ARTICLE XII.
GENERAL PROVISIONS....................................................48
Section 12.1 Amendment and Modification....................48
Section 12.2 Waiver........................................48
Section 12.3 Certain Definitions...........................48
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Section 12.4 Notices.......................................54
Section 12.5 Assignment....................................55
Section 12.6 Governing Law.................................55
Section 12.7 Counterparts; Construction....................55
Section 12.8 Headings......................................55
Section 12.9 Entire Agreement..............................55
Section 12.10 No Benefit....................................55
Section 12.11 Delays or Omissions...........................56
Section 12.12 Severability..................................56
Section 12.13 Expenses......................................56
Section 12.14 Time of the Essence...........................56
SCHEDULES
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2.3 No Violations
2.4 Affiliates and Investments
2.5 Stock Record Books
2.6 Corporate Books
2.7 List of Shareholders/Liens on Shares
2.10(a) Employees, Officers, Directors, Consultants and
Independent Contractors
2.10(c) Employment and Labor Agreements
2.11 Absence of Certain Changes
2.12 Contracts - General
2.14(a) Title and Related Matters - Owned Property
2.14(b) Title and Related Matters - Leased Property
2.14(e) Title and Related Matters - Condition
2.15 Litigation
2.16 Tax Matters
2.17 Bank and Brokerage Accounts
2.19(a) Employee Benefit Plans
2.19(i) Employee Benefit Plans - Other
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 and Reports
2.27 Absence of Undisclosed Liabilities
3.3 Consents and Authorizations of Purchaser
4.1(b) New Employees and Changes to Compensation
4.7 Assets to be Sold by the Company
4.14 Article IV Disclosure Statement
6.6 Public Announcements
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EXHIBITS
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A Other Stockholders
4.17 Purchase Price Escrow Agreement
7.7 Opinion of Seller's Counsel
8.5 Opinion of Purchaser's Counsel
11.2 Indemnity Escrow Agreement
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THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of the
16th day of October, 1998 ("Execution Date"), among MJD Services Corp., a
Delaware corporation (the "Purchaser"), Carla J. Brownlee, an Illinois resident
("Brownlee" or the "Seller"), and Ravenswood Communications, Inc., an Illinois
corporation ("Ravenswood" or the "Company").
RECITALS
WHEREAS, Brownlee owns 405 shares of Ravenswood's no par value common
stock, which 405 shares constitute all of the issued and outstanding shares of
capital stock of Ravenswood (the "Ravenswood Capital Stock");
WHEREAS, Ravenswood owns all of the issued and outstanding shares of
capital stock of The El Paso Telephone Company, an Illinois corporation
("Telephone") (the "Telephone Capital Stock") and all of the issued and
outstanding shares of capital stock of El Paso Long Distance Company ("Long
Distance"), an Illinois corporation (the "Long Distance Capital Stock");
WHEREAS, Telephone owns all of the issued and outstanding shares of
capital stock of Gemcell, Inc.("Gemcell"), an Illinois corporation (the "Gemcell
Capital Stock") (any and all shares, options, warrants, rights and interests,
legal or equitable, in or with respect to the Ravenswood Capital Stock, the
Telephone Capital Stock, the Long Distance Capital Stock and/or the Gemcell
Capital Stock hereinafter referred to collectively as the "Shares");
WHEREAS, Ravenswood is a holding company, the assets of which as of the
Execution Date include the capital stock of Telephone and of Long Distance;
WHEREAS, Telephone, Long Distance and Gemcell directly or indirectly
provide local exchange, long distance, cellular and Internet services throughout
mid-central Illinois, and Telephone is an operating telephone company that
provides wireline telecommunications services, with at least 1,900 access lines
(collectively the businesses of Ravenswood, Telephone, Long Distance and Gemcell
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;
<PAGE>
WHEREAS, a dispute existed whereby certain Persons have claimed, as
beneficiaries of the estate of Robert C. Gordon, ownership interests in and to a
portion of the shares of the Telephone Capital Stock; and
WHEREAS, the Seller has resolved and provided a mechanism for the
resolution of such dispute, and Seller has agreed to transfer to the Purchaser
title to all of the Shares, free and clear of all Liens other than Permitted
Liens.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
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 $24,691.36 for each of the 405
shares of Ravenswood Capital Stock (the "Purchase Price").
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 Brownlee and the Company) with respect to each of
Ravenswood, Telephone, Long Distance, Gemcell and all 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 Ravenswood, Telephone, Long Distance, Gemcell or any of
their Affiliates then Brownlee must so disclose any such untruth):
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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. The Seller is a resident of Illinois. 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 September 26, 1996 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 Ravenswood as
a holding company owning all of the outstanding capital stock of Telephone.
True, complete and correct copies of all of the merger documents, the ICC order
approving same, and all of the replacement Share certificates as presently in
effect have been delivered to the Purchaser. All such replaced share
certificates have been cancelled and affixed in the appropriate stock transfer
records.
Section 2.2 Authorization. The Seller and Ravenswood each has full power
and authority to execute and deliver this Agreement and, subject to Sections 2.3
and 2.26, to consummate the transactions contemplated hereby. The Board of
Directors (and as appropriate, the stockholders) of Ravenswood 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. Assuming due execution of this Agreement
by the Purchaser, this Agreement constitutes a legal, valid and binding
obligation of each of the Seller and Ravenswood 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, free and
clear of all Liens as provided for herein except Permitted Liens.
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 Ravenswood do not
and will not, subject to obtaining the
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consents and approvals referred to in Schedules 2.3 and 2.26, (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 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 Ravenswood have
complied with all applicable Regulations and Orders in connection with the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby by each of Seller and Ravenswood, subject to the
requirements which are conditions to the Closing.
Section 2.4 Affiliates and Investments. Except as set forth in Schedule
2.4, the Company has no Affiliates or investments in any Person. Attached as
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 by each of Seller and Ravenswood 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 or with respect to any such Affiliates 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 Affiliates or investments, nor
has the Company guaranteed any indebtedness on behalf of, or have any other
contingent obligations with respect to, any such Affiliates or investments, and
the Company has not pledged any such investments or Affiliates or any other of
its assets in connection with any obligations relating to any such investment or
Affiliate. Except as set forth in Schedule 2.4, the Company is not a general
partner in any of its investments, nor is any employee of the Company an officer
or director of any such investment entity. Except as set forth in Schedule 2.4,
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 Affiliates and/or investments since December 31, 1990.
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Section 2.5 Stock Record Book. Except as set forth in Schedule 2.5, 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 the Company and the
Seller owns all outstanding capital stock of Ravenswood. Ravenswood is the true
and lawful owner of all of the outstanding capital stock of Telephone and of
Long Distance. Telephone is the true and lawful owner of all of the outstanding
capital stock of Gemcell. Schedule 2.7 sets forth the total number of authorized
shares of capital stock for each of Ravenswood, Telephone, Long Distance and
Gemcell.
Section 2.6 Corporate Books. Except as set forth in Schedule 2.6, the
corporate minute books of Ravenswood, Telephone, Long Distance and Gemcell are
complete and correct in all material respects and contain signed minutes of all
of the proceedings of the shareholders and directors of Ravenswood, Telephone,
Long Distance and Gemcell since incorporation. A true and complete list of the
directors and officers of Ravenswood, Telephone, Long Distance and Gemcell as of
the Execution Date is set forth in Schedule 2.6.
Section 2.7 Title to Stock. The Shares are owned of record by the Seller,
Ravenswood and Telephone and only the Seller, Ravenswood and Telephone in such
amount as forth on Schedule 2.7 hereto. Schedule 2.7 additionally sets forth the
total number of authorized shares of capital stock for each of Ravenswood,
Telephone, Long Distance and Gemcell. 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, Ravenswood and Telephone and will be sold pursuant hereto
free and clear of all Liens, except Permitted Liens. Upon payment of the
Purchase Price pursuant to the Assignment Agreements described in Schedule 2.7
(the "Assignment Agreements"), the Seller will convey to the Purchaser good and
marketable title to the Shares, free and clear of all Liens, except Permitted
Liens. 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 and all of the interests,
legal and beneficial, of all other Persons in and to the Shares and thereby in
the Ravenswood Capital Stock, the Telephone Capital Stock, the Long Distance
Capital Stock, the Gemcell
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<PAGE>
Capital Stock and in the capital stock of each other Affiliate of the Company
and in each investment of the Company. Except as set forth in Schedule 2.4, 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 since at
least December 31, 1990.
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.
Subject to the third and fourth sentences of this Section, the Seller has
delivered to the Purchaser correct and complete copies of (i) the audited
balance sheets of Ravenswood and its subsidiaries (consolidated) as of December
31, 1997 and December 31, 1996 and of Telephone and its subsidiary
(consolidated) 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"), and (ii) the unaudited monthly balance sheets of the
Company as of July 31, 1998 and the related monthly statements of income for the
period then ended (the July 31, 1998 statements, with all unaudited statements
delivered hereafter, the "Unaudited Financial Statements"). The Financial
Statements have been audited without qualification by Kiesling Associates LLP,
independent auditors for the Company. The 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. 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 of the
Company as of, and for the respective periods ended on, such dates, all in
conformity with GAAP consistently applied, except for adjustments and notes that
would result from an audit. Since December 31, 1997 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
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<PAGE>
inaction or state of facts existing, with respect to, or based upon transactions
or events heretofore occurring.
Section 2.10 Employees.
(a) Schedule 2.10(a) sets forth a list of all of the Company's
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) 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 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 Execution Date hereof.
No contracts or provisions exist that would obligate the Company to pay any
amounts to any Person upon the change of control of the Company.
(c) Except as set forth on Schedule 2.10(c) 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 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
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<PAGE>
National Labor Relations Board ("NLRB"), (ii) there is no labor strike, material
slowdown or material work stoppage or lockout actually pending or, to the
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 or local agency responsible for the prevention of unlawful employment
practices, and (iv) the Company has not received formal 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 the Company and, to the
knowledge of the 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, 1997, 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) theft,
damage, destruction, removal or loss of assets or properties, 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, the
Telephone Capital Stock, the Long Distance Capital Stock, or the Gemcell Capital
Stock or any redemption of the Shares, the Telephone Capital Stock, the Long
Distance Capital Stock, or the Gemcell Capital Stock, (d) increase in the
compensation payable to or to become payable by the Company to its employees,
officers, directors, consultants or independent contractors except in the
ordinary course of business, (e) entry by the Company into any Contract not in
the ordinary course of business, including, without limitation, any borrowing or
capital expenditure, (f) change in accounting methods or principles used by the
Company, except for any such change which is necessitated by a change in GAAP,
or required by the FCC, ICC or RTB (which such changes shall be set forth on
Schedule 2.11 hereto), (g) operation of the Company's business other than in the
ordinary course, (h) sale, assignment or transfer of any assets or properties of
the Company except in the ordinary course of business, (i) amendment or
termination of any of the Company's Permits or Contracts, (j) waiver or release
of any material right or claim of the Company, (k) labor dispute or union
activity which affects the operation of the Company, and (l) agreement by either
the Seller or the Company to take any of the actions described in the preceding
clauses (a) through (k), except as contemplated by this Agreement.
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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 Rural Telephone Bank (RTB).
(vi) A guarantee of any obligation.
(vii) The ownership, lease (whether as lessee or lessor) or
operation of any property, real or personal that includes expenditures or
receipts in excess of $10,000 on a per item or aggregate basis.
(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 that involves on a per
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item or aggregate basis, expenditures or receipts in excess of $10,000 or
other than in the ordinary course of business.
(xiii) Employees, independent contractors, consultants, or
other agents.
(xiv) Sales, commissions, advertising or marketing.
(xv) Unconditional purchase or payment obligations that
involves on a per item or aggregate basis, expenditures or receipts in
excess of $10,000.
(xvi) Any investment or Affiliate 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
anticipated breach by any other party to any Contract to which it is subject.
Section 2.13 True and Complete Copies. Except as otherwise provided in
Sections 2.5, 2.6, 2.9, 2.14, 2.19(j), 2.26(i) and 2.28 hereof, the Seller 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 Ravenswood, Telephone, Long Distance and
Gemcell.
Section 2.14 Title and Related Matters.
(a) Owned Property. Set forth in Schedule 2.14(a) is a description
of all real property and personal property owned or used by the Company. The
Company has good and marketable title to all such
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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, 1997 are reflected in the Financial Statements in
accordance with and to the extent required by GAAP and, as of the Execution
Date, are fully set forth on Schedule 2.14(a) hereto. The Seller has 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 good and
marketable title to each of its investments set forth on Schedule 2.4 hereto,
free and clear of all Liens except Permitted 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,
to Seller's knowledge, any other Person under any such lease, and neither the
Seller 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 Execution Date. Except as set forth in Schedule
2.14(b), neither the Seller 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 Seller has delivered, with respect to any
leased real or personal property, true and complete copies of all such leases
and all amendments or supplements thereto.
(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 in all material respects with all applicable
restrictions, building ordinances and zoning ordinances and all applicable
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
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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 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 after the Closing in substantially the
same manner as conducted prior to Closing, 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. To Seller's knowledge, access to all such public roads and utilities
will be available after the Closing Date in the same manner and to the same
extent as at the Closing Date.
(e) Condition. Except as set forth on Schedule 2.14(e), since
December 31, 1997, 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 as now conducted 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. 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. No Stockholder of the Company dissented to the Company's
merger/reorganization and the time to do so under Illinois law has expired.
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Section 2.16 Tax Matters.
(a) Generally. Except as set forth in Schedule 2.16, Ravenswood,
Telephone, Long Distance and Gemcell have timely filed all federal, state and
local 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 Ravenswood, Telephone, Long
Distance and Gemcell in accordance with GAAP. All Taxes which are required to be
withheld or collected by Ravenswood, Telephone, Long Distance and Gemcell have
been duly withheld or collected and, to the extent required, have been paid to
the proper federal, state and local authorities or properly segregated or
deposited as required by applicable Regulations. There are no Liens for Taxes
upon any property or assets of Ravenswood, Telephone, Long Distance or Gemcell
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 Ravenswood, Telephone,
Long Distance nor Gemcell 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 Ravenswood, Telephone, Long Distance or Gemcell has at
any time been a member (whether or not shown on any Tax Return) have been paid
for each taxable period during which Ravenswood, Telephone, Long Distance or
Gemcell was a member of the affiliated group. Neither Ravenswood, Telephone,
Long Distance nor Gemcell has any liability for the unpaid Taxes of any Person
under Treasury Regulation ss. 1.1502-6 (or any similar provision of state and
local 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 IRC Section 368(a)(2)(E). All filings and/or
notifications required to be made with the Internal Revenue Service and/or with
the Illinois Department of Revenue and/or with the Illinois Secretary of State
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.
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(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.
(f) Partnerships. Except as disclosed in Schedule 2.16, 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, except as disclosed on Schedule 2.16, 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.
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(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, 1995, 1996 and 1997 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 applicable 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").
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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 "IRC"), 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 the Seller
or the Company) is threatened or about to occur which would constitute a
prohibited transaction under Section 406 of ERISA or under Section 4975 of
the IRC;
(iii) each ERISA Plan has operated since its inception in
accordance with the reporting and disclosure requirements imposed under
ERISA and the IRC 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
or local Taxes.
(c) Each Pension Benefit Plan intended to be qualified under Section
401(a) of the IRC:
(i) has been qualified, from its inception, under Section
401(a) of the IRC, and the trust established thereunder has been exempt
from taxation under Section 501(a) of the IRC 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 Seller or Company)
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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 IRC or that any trust established under a Pension Benefit
Plan is not exempt under Section 501(a) of the IRC.
(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 IRC:
(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 the Seller or the 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 IRC); 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
$130,000.00 for the time period commencing January 1, 1998 and ending December
31, 1998 (which amount consists of the
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following components: $26,311 of anticipated SEPP contributions, $93,634 of
anticipated premium expenses for health, life, disability and dental insurance,
and $10,055 for miscellaneous adjustments to such amounts), 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, 1997; 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; and
(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
Execution Date (including, without
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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
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 IRC; and
(vi) has been implemented since its inception in material
compliance with the reporting and disclosure requirements imposed under
ERISA and the IRC.
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, except as listed therein. 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
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business as presently conducted, with all such licenses specified in Schedule
2.20.
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 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.
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(c) Transportation. The Company has not (i) transported or arranged
for the transportation of any Hazardous Material to any location which to
Company's knowledge 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 to Company's or Seller's knowledge previously owned or
leased by the Company is listed or to Company's or Seller's knowledge 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. 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, 1997. There has been no order or ruling from the
ICC or any other regulatory body and, to Seller's knowledge, none is threatened
or expected by the Company requiring or recommending that the Company undertake
any capital expenditures or investments.
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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, 1997, 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 Seller's
or 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, 1993.
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 all applicable municipalities ("Permits")
issued to or held by the Company in connection with its operations as presently
conducted. Such Permits are the only Permits that are required for the Company
to conduct its business as presently conducted. Each such Permit is in full
force and
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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. The El Paso, Illinois territory served by Telephone
constitutes one (1) entire study area. Except as set forth in Schedule 2.26,
upon receipt of authorization, consent, approval or exemption from or notice to
the applicable Person, as set forth in Schedule 2.3 hereto, 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 Authority or municipality (including taxing
authorities) with respect to the Business on or before the Execution Date 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 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 Authority or municipality (including taxing authorities) is
attached hereto as Schedule 2.26; true and complete copies of all such returns,
reports, applications, statements, Permits and other documents set forth on
Schedule 2.26 have been previously provided to Purchaser by the 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 or Unaudited Financial
Statements, (ii) current liabilities incurred in the ordinary course of business
and consistent with past practice after the date of the Financial Statements or
Unaudited Financial Statements or 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
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obligations and liabilities relating in any way to the Company's investments and
Affiliates are set forth on Schedule 2.4 hereto, setting forth the maximum
amount of the Company's potential obligations and the expected payment schedule
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 Execution Date and not otherwise set forth in the Financial Statements or
Schedule 2.12 are set forth on Schedule 2.27 hereto.
Section 2.28 Disclosure. Neither this Agreement nor any of the
attachments, schedules, exhibits, 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 with respect to
itself and its Assignee as follows even though such representation and/or
warranty shall only use the word Purchaser (in other words, if any
representation or warranty or covenant or agreement would be untrue as to
Purchaser or Assignee then Purchaser must so disclose any such untruth:
Section 3.1 Corporate Organization. The Purchaser 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 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.
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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. 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.
Section 3.5 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 Purchaser or any of its Affiliates.
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Section 3.6 Litigation. Except as set forth in Schedule 3.6, there is (a)
no Claim pending or, to Purchaser's knowledge, threatened against Purchaser
relating to the transactions contemplated by this Agreement, (b) no Claim by
Purchaser pending or threatened against any Person relating to the transactions
contemplated by this Agreement, (c) no outstanding Order relating to Purchaser
and to the transactions contemplated by this Agreement, and (d) no Claim by any
person relating to the transactions contemplated by this Agreement.
Section 3.7 Disclosure. Neither this Agreement nor any of the attachments,
schedules, exhibits, written statements, documents, certificates or other items
prepared for or supplied to the Seller or the Company by or on behalf of the
Purchaser 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 IV.
COVENANTS OF THE SELLER AND THE COMPANY
Subject to the provisions of Section 4.14 hereof, from and after December
31, 1997 until the Closing Date, the Seller and Ravenswood agree that they shall
have acted and 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 (the term "Company" as used in this Article IV shall mean and include
Ravenswood, Telephone, Long Distance, Gemcell and any and all of their
Affiliates):
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 material change except as expressly provided herein or as
agreed to by the Purchaser 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 material 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
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employed at December 31, 1997, except for changes required by reason of a
concurrent change in GAAP or required by the FCC, ICC or RTB, all of which
changes are set forth on Schedule 2.11 hereto.
(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, other than as required by law or
in the ordinary course and consistent with past practices, and only to the
extent set forth in Schedule 4.1(b) hereto.
(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 Seller 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 Execution Date, 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.
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,
except for dividends normally declared and paid consistent in amounts with past
practices on Ravenswood Capital Stock, Telephone Capital Stock, Long Distance
Capital Stock or Gemcell Capital Stock.
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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 or if less than $10,000 for any individual or aggregate unbudgeted
project or matter. Except with respect to a $500,000 loan from Ravenswood to
Seller, 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) per occurrence or
$50,000 in the aggregate in the ordinary course of business or under existing
borrowing facilities set forth on Schedule 2.12 hereto. Further, the Company
shall not incur, assume or guarantee any indebtedness or obligation of any of
its Affiliates 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 as described in Schedule 4.7, or allow any of its assets and properties to
become subject to a Lien other than a Permitted Lien.
Section 4.8 Other Commitments. Except as set forth in this Agreement or
permitted in writing by the Purchaser from and after the Execution Date, the
Company shall not enter into any transaction, make any commitment or incur any
obligation other than (a) in the ordinary course of business, (b) the
distribution and loan described in Sections 4.4 and 4.5, respectively, (c) the
payment of expenses set forth in Section 12.13, and (d) the transactions
described in Schedule 4.7.
Section 4.9 Financial Information. From and after the Execution Date, the
Company shall supply the Purchaser with a copy of its internal monthly Unaudited
Financial Statements within forty-five (45) days after the end of each month.
Section 4.10 Consents and Authorizations. The Seller and the Company
shall, promptly after the Execution Date, 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 reasonable efforts
to obtain such consents, waivers and authorizations as promptly as practicable
prior to the Closing Date, provided, however, that this provision shall not
require Seller or the Company to waive any conditions to its obligations
hereunder.
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Section 4.11 Access. 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 (including any environmental assessment) 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. The Seller and the Company shall act and
cooperate jointly with Purchaser 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 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, 1997 and prior to the Execution Date, such actions are set
forth on Schedule 4.14 hereto. From and after the Execution Date, 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 reasonably necessary for
Purchaser to consummate this transaction, including, subject to Section 4.11,
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.
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Section 4.16 Payment of Estate Tax Liability. On or before the Closing
Date, Seller shall pay the outstanding balance due of any federal estate taxes
due and owing on the Estate of Robert C. Gordon and shall cause the removal of
any and all liens relating thereto.
Section 4.17 Purchase Price Escrow Agreement. On or before the Closing
Date, Seller and those Persons listed on Schedule 6.6, subheading A(1-7) shall
by mutual agreement execute the escrow agreement in substantially the form
attached hereto as Exhibit 4.17 (the "Purchase Price Escrow Agreement") (or with
such changes as are approved in writing by Purchaser), to effectuate the payment
of the Purchase Price as described in Sections 1.2 and 9.2. Seller shall furnish
Purchaser with an original of the fully executed Purchase Price Escrow
Agreement.
ARTICLE V.
COVENANTS OF THE PURCHASER
From and after the Execution Date until the Closing Date, the Purchaser
agrees that it shall have acted and shall act, or refrain from acting where so
required, to comply with the following (the term "Purchaser" as used in this
Article V shall mean and include any Assignee).
Section 5.1 Consents and Authorizations. The Purchaser shall, promptly
after the Execution Date, commence efforts to obtain the consents, waivers and
authorizations listed in Schedule 3.3. The Purchaser shall diligently pursue and
use its reasonable efforts to obtain such consents, waivers and authorizations
as promptly as practicable prior to the Closing Date, provided, however, that
this provision shall not require Purchaser to waive any condition to its
obligations hereunder.
Section 5.2 Insurance Continuation. The Purchaser shall provide Seller and
James E. Brownlee, each as a retired director of Ravenswood, coverage, at the
Company's expense, under such health, medical, dental and/or similar plan as the
Company has in effect from time to time, until the third (3rd) anniversary of
the Closing; provided, however, the Purchaser or the Seller may at any time
elect to satisfy this obligation by the payment of a lump sum sufficient to fund
such coverage. Additionally, the Purchaser shall provide the Company's officers
and directors who resign in connection with this transaction with continuing
directors' and officers' liability insurance coverage as provided in Section
6.8(b) hereof.
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Section 5.3 Filings. Seller, Company and Purchaser shall cooperate with
one another in jointly preparing, applying for and making the filings and
authorizations or regulatory approvals required in connection with the
execution, delivery and performance of this Agreement, including, without
limitation, approval of the ICC. Purchaser assumes the economic burden of such
applications and filings, including, without limitation, the filing fee
associated with the ICC filing.
Section 5.4 Notice of Transfer. The Purchaser shall cooperate with the
Seller and the Company 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 5.5 Cooperation with Seller and Company. Purchaser shall cooperate
with each of Seller and Company as shall be reasonably necessary for Seller and
Company to consummate this transaction, and shall provide Company with any and
all reports produced pursuant to any environmental assessment undertaken
pursuant to Section 4.11 hereof.
Section 5.6 Supplement. From time to time prior to the Closing Date, the
Purchaser shall promptly notify the Seller and the Company of any changes with
respect to the information set forth in this Agreement or the Schedules attached
hereto and of the other matters hereafter arising which, if in existence at the
Execution Date, would have been required to be set forth in this Agreement or
the Schedules hereto.
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 (except as otherwise provided herein) to take, or cause to be taken,
all action, and to do, or cause
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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, provided, however, that this provision shall not
require Seller, Company or Purchaser to waive any conditions to its obligations
hereunder. 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 use reasonable 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.
Section 6.5 No Termination of the Obligations by Subsequent Dissolution.
Each of the parties hereto specifically agrees that its obligations
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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 without the prior
written consent of the other parties hereto, except (i) to those persons listed
in Schedule 6.6, (ii) as required to obtain the consents, waivers and
authorizations listed in Schedules 2.3, 2.26 and 3.3, (iii) in connection with
the Purchaser's financing of the transactions contemplated hereby, (iv) as
required by applicable law, and (v) in connection with any securities law
filing. Subject to the forgoing sentence, 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.
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 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
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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 minute 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, (ii)
it is necessary or appropriate for the Seller to retain such records for use in
preparation of Tax Returns under the provisions hereof, or (iii) it is with
respect to any Claim concerning the Estate of Robert C. Gordon. The Seller may
make and retain copies of all or any such records or documents at her expense.
(d) Witnesses. At all times from and after the Closing Date, each of
the Seller, the Company 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. The Purchaser
will, if requested by the Seller, assist the Seller in performing this
obligation, at no cost to the Seller. If any claim is asserted against the
Company relating to periods prior to the Closing Date, the Seller 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
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
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be requested by the Seller to pursue 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 Article
XI of 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 Seller shall provide reasonable cooperation and assistance to the
Company and the Purchaser.
(b) Insurance Coverage After the Closing Date. The Purchaser shall
be responsible for establishing and maintaining the Company's 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 the Company and its Affiliates on and after the Closing
Date, either through the continuation of the Company's policies in place as at
the Closing Date, or the establishment of new policies, in the Purchaser's sole
discretion. Notwithstanding the foregoing, it is the intent of the parties that
those persons who served in the capacity of officer or director of the Company
prior to the Closing, and who resign from such positions in connection with the
transaction contemplated by this Agreement, be provided with continuing director
and officer liability insurance at the Company's expense and that Seller and
James E. Brownlee be provided with the insurance contemplated by Section 5.2, at
Company's expense. The Purchaser therefore agrees to cause the Company, at the
Company's expense, to provide "tail" insurance coverage for such individuals,
from the date of Closing until the third (3rd) anniversary thereof.
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
ten (10) 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
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in providing access to such materials as is reasonably required by the
Purchaser.
The parties hereto agree that the Seller shall prepare, and pay (or have
fully reserved for on the Company's Audited and Unaudited Financials) 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
Seller and the Purchaser, the Company may prepare any such required tax returns.
The 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 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 documents as are reasonably requested to carry out
the administration of the Tax provisions of this Agreement.
(c) Amended Returns. From and after the Closing Date, Purchaser may
file an amended Tax Return for any period ending on or prior to the Closing Date
without the consent of the Seller. Any additional Taxes resulting from such an
amended Tax Return shall be the responsibility of, and shall be paid solely
by(i) the Seller (through indemnification pursuant to Article XI hereof), to the
extent such Taxes result from an amended Tax Return filed to correct any
"understatement," as such term is defined in Section 6662 of the IRC, by the
Seller or the Company with respect to all reporting periods ending on or before
the Closing Date, and (ii) the Company in all other events. The Purchaser shall
provide the Seller with notice of and a reasonable opportunity to participate in
the preparation of any such amended Tax Return, and the Seller agrees to provide
the Purchaser with reasonable cooperation and assistance in connection
therewith. Notwithstanding the foregoing, any and all determinations regarding
any and all such Tax Returns shall ultimately be made by the Purchaser, in its
sole discretion.
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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; Covenants and Deliveries. 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 except
for such representations or warranties that are expressly made as of another
date, which shall be true and correct in all material respects as of such other
date. 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.
The 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, and 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 or specifying those
respects in which particular covenants have not been performed in all material
respects or in which such representations and warranties are not true and
correct in all material respects (in which event, if the Closing occurs, any
claim (including any claim for indemnification) with respect to matters so
specified shall be thereafter waived by Purchaser). The Purchaser agrees and
acknowledges that any federal or state regulation or deregulation, or any
changes in Regulations applicable to federal or state regulation of the
Business, occurring between the Execution Date and the Closing Date, even if
such changes have or are reasonably expected to have a negative effect on the
Business and its results of operations, shall not constitute a breach of the
representations and warranties contained in Section 2.11 or any other Section
and shall not constitute a failure of a condition precedent to the Purchaser's
obligations hereunder. The Seller shall deliver to the Purchaser all of the
certificates, stock powers, settlement and release agreements and other
documentation referenced in Section 9.2 hereof, evidencing the transfer to the
Purchaser of clear title to all of the Shares at the Closing, all in form and
substance satisfactory to the Purchaser and its counsel in their sole
discretion.
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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, free of any special terms,
conditions or restrictions which Purchaser determines, in good faith and
following consultation with Seller, will materially and adversely affect the
actual, prospective operational and financial benefits to Purchaser of the
transactions contemplated by this Agreement. For purposes of this Agreement, all
such approvals and consents shall be deemed to have been obtained after the
grant thereof has become final, non-appealable and not subject to
reconsideration.
Section 7.3 No Material Adverse Change. There shall have been no Material
Adverse Change in the Business, properties (not otherwise covered by insurance),
Financial Statements, Unaudited Financial Statements, business prospects,
condition (financial or otherwise) or results of operations of the Company since
December 31, 1997 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 proceeding, litigation or
Order (exclusive of Orders promulgated by or pertaining to the FCC, the ICC or
any similar regulatory Authority, the existence or occurrence of which shall be
governed by Section 7.2 hereof) 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
certificates, signed by the Secretary of Ravenswood and the Secretary of
Telephone, Long Distance and Gemcell, each dated the Closing Date, as to the
charter and by-laws of Ravenswood and of Telephone, Long Distance and Gemcell
and as to the resolutions adopted by the shareholders and directors of each 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
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standing of the Company and each of its Affiliates in their respective
jurisdictions of incorporation and in each jurisdiction in which each is
qualified to do business as a foreign corporation as of a date not more than
fifteen (15) days prior to the Closing Date.
Section 7.7 Opinion of Seller's Counsel. The 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 Resignations. The Seller shall have caused all directors and
officers of the Company and of all of its Affiliates to have resigned from all
such positions.
Section 7.9 Other Documents. The Purchaser shall have been furnished with
such other and further documents and certificates, including evidence of the
payment of the estate tax liability contemplated by Section 4.16, execution of
the Purchase Price Escrow Agreement, and certificates of the Seller, the Company
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 Shares
and on the assets and properties of the Company other than Permitted Liens.
Section 7.11 Delivery of Minute Books and Investment Certificates. The
Seller shall deliver at Closing all original minute books and stock transfer
records of Ravenswood, Telephone, Long Distance and Gemcell, as well as any and
all original certificates, if any, evidencing the Company's investments.
Section 7.12 Delivery of Unaudited Financial Statements. The Seller shall
have delivered Unaudited Financial Statements to the Purchaser as provided in
Section 4.9 hereof.
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:
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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 for such representations or
warranties that are expressly made as of another date, which shall be true and
correct in all material respects as of such other date. 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, and 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
or specifying those respects in which particular covenants have not been
performed in all material respects or in which such representations and
warranties are not true and correct in all material respects (in which event, if
the closing occurs, any claim (including any claim for indemnification) with
respect to matters as specified shall be thereafter waived by Seller).
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, free of any special terms, conditions or restrictions which Seller
determines, in good faith and following consultation with Purchaser, will
materially and adversely affect the actual, prospective operational and
financial benefits to Seller of the transactions contemplated by this Agreement.
For purposes of this Agreement, all such approvals and consents shall be deemed
to have been obtained after the grant thereof has become final, non-appealable
and not subject to reconsideration.
Section 8.3 No Proceeding or Litigation. No proceeding, litigation or
Order (exclusive of Orders promulgated by or pertaining to the FCC, the ICC or
any similar regulatory Authority, the existence or occurrence of which shall be
governed by Section 8.2 hereof) shall be in effect which would prevent the
consummation of the transactions contemplated hereby.
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Section 8.4 Secretary's Certificate. The Seller shall have received a
certificate, signed by the Secretary or the Assistant 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.
Section 8.6 Certificates of Good Standing. At the Closing, Purchaser shall
have delivered to Seller certificates issued by the appropriate governmental
authorities evidencing the good standing of Purchaser in its jurisdiction of
incorporation, as of a date not more than fifteen (15) days prior to the Closing
Date.
Section 8.7 Other Documents. The Seller and Company shall have been
furnished with such other and further documents and certificates, including
certificates of Purchaser's officers, directors and others, as Seller or Company
shall reasonably request to evidence compliance with the conditions set forth in
this Agreement.
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 January 4, 1999 (effective as of 12:01 A.M. on January 1, 1999) (or on
such date either before or after January 4, 1999 as the parties hereto shall
mutually agree, which shall occur and be effective at least ten (10) days after
receipt of all ICC and other approvals required as a precondition to Closing,
and which shall, to the extent reasonably feasible, occur and be effective on
the first day of a month) (the "Closing Date") in the offices of the Purchaser's
counsel, or at such other location as the parties hereto shall mutually agree;
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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Section 9.2 Closing Date Payment and Receipt of Shares. On the Closing
Date:
(a) the Seller will assign and transfer to the Purchaser good and
valid title in and to the Shares, free and clear of all Liens except Permitted
Liens, by delivering to the Purchaser (i) 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) a fully executed original of the Purchase Price Escrow Agreement, and duly
executed settlement and release agreements, in form and substance satisfactory
to the Purchaser and its counsel, in their sole discretion, on behalf of the
persons listed in Schedule 6.6, subheading A(1-7) (if not otherwise contained
within said escrow agreement) and any and all other third parties who or which
claim, or have claimed an interest, legal or equitable, in any of the Shares as
beneficiaries of the estate of Robert C. Gordon (including, without way of
limitation, Lois Beach, Linda Frey, Russell Haas, Eugene Koos, the Alpha Iota
Chapter of Sigma Chi Fraternity at Illinois Wesleyan University, and Illinois
Wesleyan University), waiving and forever releasing any and all such Claims, and
(iii) any and all such additional documentation as is deemed necessary by the
Purchaser and its counsel, in their sole discretion, to evidence the transfer to
the Purchaser of title to the Shares at the Closing, free and clear of all Liens
except Permitted Liens;
(b) the Purchaser shall, by wire transfer of same-day funds, deposit
in an escrow account at First Federal Savings and Loan Association the amount of
One Million Dollars ($1,000,000.00) (the "Indemnity Escrow Funds"), all as
provided in the Indemnity Escrow Agreement referred to in Section 11.2 hereof;
(c) the Purchaser shall, by wire transfer of same-day funds, pay to
the escrow account established under Section 4.17, the aggregate amount of the
Purchase Price for all of the Shares, less the Indemnity Escrow Funds, less
$500,000 (from the amount otherwise payable to the Seller) with respect to
payment of the principal of Seller's promissory note to Ravenswood as provided
in Section 4.5 hereof, and concurrently therewith Seller shall pay to Purchaser
the accrued interest on such promissory note, said accrued interest amount to be
determined by the parties at least two (2) days before Closing;
(d) the parties shall deliver to each other the documents required
under this Agreement to be delivered at or prior to the Closing; and
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(e) Upon delivery of the remainder of the Purchase Price to the
escrow account as provided in Section 9.2(c), the Purchaser shall have no
further obligation whatsoever with respect to the maintenance, investment or
distribution of such funds or the determination of the Person or Persons
entitled thereto, and the Purchaser shall be deemed to have completely fulfilled
all of its duties hereunder with respect thereto and any and all Shares shall be
deemed paid for in full by Purchaser.
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 waived by Purchaser 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)
business days after the Purchaser has notified the Seller in writing in
reasonable detail of such default).
(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 than ten (10) days after the
Seller has notified the Purchaser in writing thereof) or waived by Seller or if
the Purchaser is otherwise in default in any material respect under this
Agreement (and remains in default for more than ten (10) business days after the
Seller has notified the Purchaser in writing in reasonable detail of such
default).
(d) Failure to Close by July 31, 1999. By either party in the event
the Closing has not occurred by July 31, 1999, unless such
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failure to close shall be due to a breach of this Agreement by the party seeking
to terminate the Agreement.
(e) Material Adverse Change. By the Purchaser if a Material Adverse
Change shall be shown (in the sole discretion of Purchaser) in the Financial
Statements made as of December 31, 1997 or in any of the Unaudited Financial
Statements and written notice of termination of this Agreement shall have been
given by the Purchaser within thirty (30) business days of Purchaser's receipt
of such Financial Statements or Unaudited Financial Statements.
(f) 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; provided, however, that in the event the parties hereto (singly or
collectively) are unable to obtain all satisfactory and necessary approvals,
consents, authorizations, waivers and Permits from each applicable Authority in
connection with the transactions contemplated by this Agreement, following good
faith efforts to do so, or in the event of a Material Adverse Change or any
proceeding, litigation or Order as described in Sections 7.4 or 8.3 hereof which
result from actions, events or circumstances which are beyond the control of the
party affected by such Material Adverse Change, then in such event the sole and
exclusive remedy of the parties hereto shall be termination of this Agreement,
and the parties hereto shall specifically not have, and hereby waive, all such
other remedies as may be allowed by law or equity. In the event the transactions
contemplated hereby are not consummated following a breach by the Seller or the
Company of the provisions of Section 6.4 hereof, the Purchaser's sole and
exclusive remedy shall be the Breakup Fee, as provided in Section 10.2(c)
hereof, and the Purchaser shall specifically not have, and hereby waives, all
such other remedies as may be afforded by law or equity.
(g) Notwithstanding Sections 10.1(b) and 10.1(c), a party shall not
be deemed to be in default in any material respect under this Agreement where
such default (a "Resulting Default") is caused directly or primarily by the
other party, and such Resulting Default shall be abated day-for-day for the time
period such Resulting Default was caused or continues to be caused by the other
party.
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,
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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 Authority) shall not at any time be used by such party, or
disclosed to third parties, all as provided in the Confidentiality Agreement.
(c) Breakup Fee. In the event the transactions contemplated hereby
are not consummated following a breach by the Seller or the Company of the
provisions of Section 6.4 hereof, the Seller and the Company shall jointly and
severally pay to the Purchaser, within ten (10) business days following the
termination of this Agreement, a "Breakup Fee" in the amount of Four Hundred
Thousand and No/100 Dollars ($400,000.00), in readily available funds. Such
amount shall be considered liquidated damages and not a penalty.
Section 10.3 Exclusive Remedy. The parties hereby expressly agree that if
the closing of the transactions contemplated by this Agreement does not occur,
the remedies provided under this Article X shall be the sole and exclusive
remedies for any and all Claims by either party against the other for matters
arising under this Agreement. In the event the closing of the transactions
contemplated by this Agreement does occur, this Article X shall be superseded by
Article XI and Article X shall have no further legal effect.
ARTICLE XI.
SURVIVAL OF TERMS; INDEMNIFICATION
Section 11.1 Survival; Limitations.
(a) 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
for two (2) years from such date (the "Indemnification Period"), 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
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shall be made prior to the end of, the Indemnification Period; provided,
however, that with respect to any income tax liability of the Company, Telephone
or any of their Affiliates attributable to any activities or transactions
occurring by any of them on or prior to the Closing Date, the agreement of the
Seller 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 IRC.
(b) Notwithstanding anything in this Agreement to the contrary, each
of the parties hereto shall be required to indemnify one another pursuant to the
provisions of this Article XI only to the extent that Claims indemnifiable by
such party exceed Twenty- Five Thousand Dollars ($25,000) in the aggregate, and
only with respect to such excess. Additionally, the liability of each of the
parties hereto with respect to indemnity pursuant to any provision contained in
this Article XI shall be limited to One Million Dollars ($1,000,000) in the
aggregate and, with respect to Seller's obligation, shall be satisfied only from
the funds held in the Escrow Account described in Section 11.2. Except as
provided in this Article XI, neither party shall be liable to or obligated to
indemnify the other party for any consequential, special, punitive or exemplary
damage.
Section 11.2 Escrow of Liquid Assets. One Million Dollars ($1,000,000.00)
of the Purchase Price otherwise payable to the Seller for her Shares shall be
maintained in an escrow account (the "Indemnity Escrow Account"), in First
Federal Savings and Loan Association, pursuant to the terms and provisions of an
Indemnity Escrow Agreement to be executed at Closing substantially in the form
attached hereto as Exhibit 11.2 (the "Indemnity Escrow Agreement"). In the event
of a claim for indemnity against Seller pursuant to Article XI, the Purchaser's
sole recourse shall be to make a claim directly from the Indemnity Escrow
Account for payment of any such indemnity in the manner provided in the
Indemnity 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 subsidiaries and Affiliates (including, without limitation,
Ravenswood, Telephone, Long Distance and Gemcell) and their respective officers,
directors, employees, shareholders, representatives and agents shall be
indemnified and held harmless by the Seller, her heirs, successors,
representatives and assigns, against and in respect of any and all damage, loss,
liability, cost or expense (including, the reasonable fees and expenses of
counsel and any Tax
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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 or the Company 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, Unaudited Financial Statement or instrument delivered by or on behalf
of the Seller or the Company hereunder.
(b) Taxes. All Taxes of the Seller or the Company, or any of their
Affiliates 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 September 26, 1996
not be held to be tax-free under the IRC, provided, however, that Seller's
indemnity obligation with respect to Taxes resulting from amended returns filed
by Purchaser shall be governed by the provisions of Section 6.9(c) hereof.
(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,
including, without way of limitation, any and all Claims arising from or
pertaining to in any way the real property formerly owned by the Company and
located at the corner of Central and First Streets and/or known as 88 North
Central Street, El Paso, Illinois, which property formerly housed the Clifton
Hotel, 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, including, without way of limitation, any and all such Claims by
or on behalf of any and all Persons who or which claim any right, title or
interest, legal or equitable, as beneficiaries of the estate or otherwise of
Robert C. Gordon, in or to any of the Shares, including, without way of
limitation, the Ravenswood Capital Stock or the Telephone Capital Stock, or the
proceeds thereof (including, without way of limitation, claims of improper,
incorrect or incomplete payment by the Escrow Agent pursuant to the terms of the
Purchase Price Escrow Agreement).
(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
to the limitation set forth in Section 11.1, the Seller, her heirs, successors,
representatives and assigns shall be
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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 11.5 Third Party Claims.
(a) Generally. Subject to the limitations of Section 11.1, 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 such Claim or process and all legal pleadings. Subject to the limitations of
Section 11.1, 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
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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. Subject
to the limitations of Section 11.1 hereof, 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 or
reimburse the Indemnitee under Article XI of this Agreement, the Indemnitor
shall immediately pay such amount to the Indemnitee in order to enable the
Indemnitee to make such payment, or otherwise shall promptly reimburse the
Indemnitee in an amount equal to the amount of such payment, in either case,
plus all out-of-pocket expenses (including 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; provided, however, that in
the event the Seller is the Indemnitor with respect to such Claim, then such
payment and reimbursement (plus out-of-pocket expenses, as provided above) shall
be made from and solely out of the Indemnity Escrow Funds, and the Indemnitor
and the Indemnitee shall jointly instruct the Indemnity Escrow Agent, in
writing, to make such payment and reimbursement from and out of the Indemnity
Escrow Account. 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 hereunder without the approval of
the Indemnitor, which shall not be unreasonably withheld.
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(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,
(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) or (iii) the Claim in any manner relates to or arises from any
dispute as to the ownership of the Shares or the entitlement to the proceeds
thereof. In either of which events, such fees and expenses of not more than one
additional counsel for the Indemnitee shall be borne by the Indemnitor, subject
to the limitations of Section 11.1(b).
Section 11.6 Other Claims.
(a) Subject to the limitations of Sections 7.1, 8.1 and 11.1, in the
event an Indemnitee should have a claim under this Article XI against an
Indemnitor that does not involve a third party Claim, the Indemnitee shall
promptly give notice (the "Indemnitee Notice") and the details thereof,
including copies of all relevant information and documents, to the Indemnitor
within a period of thirty (30) days following the discovery of the claim by the
Indemnitee (the "Claim Notice Period"). The failure by any Indemnitee to give
the Indemnitee Notice within the Claim Notice Period shall not impair the
Indemnitee's rights hereunder except to the extent that the Indemnitor
demonstrates that it has been prejudiced thereby. The Indemnitor will notify the
Indemnitee within a period of twenty (20) days after the receipt of the
Indemnitee Notice by the Indemnitor (the "Indemnity Response Period") whether
the Indemnitor disputes its liability to the Indemnitee under this Article XI
with respect to such Claim. Subject to the limitations of Section 11.1, if the
Indemnitor notifies the Indemnitee that it does not dispute the Claim described
in such Indemnitee Notice or fails to notify the Indemnitee within the Indemnity
Response Period whether the Indemnitor disputes the claim described in such
Indemnitee Notice, the actual damages as finally determined will be conclusively
deemed to be a liability of the Indemnitor under this Article XI and the
Indemnitor shall pay the amount of such damages to the Indemnitee on demand;
provided, however, that in the event the Seller is the Indemnitor with respect
to such claim, then such payment shall be made from and solely out of the
Indemnity Escrow Funds. If the Indemnitor notifies the Indemnitee within the
Indemnitee Response Period that the Indemnitor disputes its liability with
respect to such Claim, the Indemnitor and the Indemnitee will proceed in good
faith to negotiate a resolution of such dispute, and if not resolved through
negotiations within a period of thirty (30) days from the date of such notice or
such longer period
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as may be agreed to by the parties in writing, such dispute shall be resolved by
arbitration in accordance with Section 11.6(b) hereof.
(b) Any dispute required to be submitted to arbitration pursuant to
this Section 11.6(b) shall be finally and conclusively determined in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(the "Rules of Arbitration") then in effect by the decision of three (3)
arbitrators (the "Board of Arbitration") selected in accordance with the Rules
of Arbitration. The Board of Arbitration shall meet in Charlotte, North Carolina
and shall render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to and stating the amount, if
any, which the Indemnitor, subject to the limitations of Section 11.1, is
required to pay to the Indemnitee in respect of the claim made by the
Indemnitee. The decision of the Board of Arbitration shall be rendered as soon
as practical following commencement of proceedings with respect thereto. The
Board of Arbitration shall cause its written decision to be delivered to the
Indemnitee and the Indemnitor and, to the extent the Indemnity Escrow Account is
still in existence, to the Escrow Agent. Any decision made by the Board of
Arbitration shall be final, binding and conclusive on the Indemnitee and the
Indemnitor and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction.
The parties hereto hereby consent to the jurisdiction of the
foregoing Board of Arbitration and to the jurisdiction of any local, state or
federal court located in the State of North Carolina for the purpose of
enforcing the decision or award of the Board of Arbitration or otherwise. The
parties hereto agree that all service of process may be made on any such party
by personal delivery or by registered or certified mail addressed to the
appropriate party at the address for such party set forth in this Agreement.
Subject to the limitations of Section 11.1, all fees, costs and
expenses of the prevailing party in any arbitration, including, but not limited
to, attorneys' fees, shall be paid by the losing party and shall be awarded to
the prevailing party as part of the decision of the Board of Arbitration. For
purposes hereof, a "Prevailing Party" shall mean the party which substantially
prevails in its position in arbitration. Each and every arbitration proceeding
commenced pursuant to this Section 11.6(b) shall be consolidated with any
arbitration proceedings simultaneously or previously commenced (but not
concluded) under this Section 11.6(b).
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Section 11.7 Continued Liability for Indemnity Claims.
The liability of any Indemnitor hereunder with respect to claims
hereunder shall continue for so long as any claims for indemnification may be
made hereunder pursuant to this Article XI and, with respect to any such
indemnification claims duly and timely made, thereafter until the Indemnitor's
liability therefore is finally determined and satisfied.
Section 11.8 Exclusive Remedy. The parties hereby expressly agree that if
the closing of the transactions contemplated by this Agreement does occur the
indemnification to be provided under and pursuant to Article XI shall be the
sole and exclusive remedy for any and all Claims by either party against the
other for matters arising under this Agreement.
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 all of 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 approvals or consent by or on behalf of any party
hereto, such approval or consent shall be given in writing, and except where
specifically stated to be in a party's sole discretion, shall not be
unreasonably withheld, conditioned or delayed.
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
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policies of such Person, whether through the ownership of voting securities, by
Contract or otherwise. Neither Associated Network Partners, Inc., Illinois
Valley Cellular RSA 2, Inc., Illinois Valley Cellular RSA 2-I Partnership,
Illinois Valley Cellular RSA 2-II Partnership, nor Illinois Valley Cellular RSA
2-III Partnership shall be deemed an Affiliate for purposes of this definition,
but all such entities shall be deemed investments for purposes of this
Agreement.
"Agreement" shall have the meaning ascribed to such term in the preamble
hereof, as the same may be amended from time to time.
"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, or local.
"Business Day" shall mean any day that is not a Saturday or Sunday and
that in El Paso, Illinois, or Charlotte, North Carolina, 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, or otherwise, whether civil, criminal,
administrative or otherwise, by any Authority or other Person, including, by way
of example and not limitation, any of the foregoing brought by or on behalf of a
Person asserting any right, title or interest, legal or equitable, as
beneficiaries of the estate of Robert C. Gordon, in or to any of the Shares,
including, without way of limitation, the Ravenswood Capital Stock or the
Telephone Capital Stock, or the proceeds thereof.
"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.
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<PAGE>
"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
Ravenswood Communications, Inc., The El Paso Telephone Company, El Paso Long
Distance Company and Gemcell, Inc.
"Confidentiality Agreement" shall mean that confidentiality agreement
signed by the parties hereto and dated December 6, 1996.
"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, 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.
"Execution Date" shall have the meaning ascribed to such term in the
preamble hereof.
"FCC" shall mean the Federal Communications Commission.
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<PAGE>
"Financial Statements" shall have the meaning ascribed to such term in
Section 2.9 hereof.
"GAAP" shall mean United States generally accepted accounting principles,
consistently applied, as in existence at the Execution Date and/or at the
Closing Date.
"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.
"Indemnity Escrow Account" shall have the meaning ascribed to such term in
Section 11.2 hereof.
"Indemnity Escrow Agreement" shall have the meaning ascribed to such term
in Section 11.2 hereof.
"Indemnity Escrow Funds" shall have the meaning ascribed to such term in
Section 9.2 hereof.
"Information" shall have the meaning ascribed to such term in Section
6.7(a) hereof.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"IRS" means the Internal Revenue Service.
"Knowledge," "known," or "know" shall mean knowledge of a particular fact
or matter of an individual if such individual is actually aware of such fact or
other matter, or if such individual is serving or has served as an officer
and/or director of the entity to which such representation or warranty pertains
and should have been actually aware of such fact or other matter, given the
level of
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<PAGE>
responsibility and supervisory authority generally associated with such
position(s).
"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, including,
without way of limitation, any and all of the foregoing which in any manner
relate to or arise from Claims by or on behalf of any Person who or which claims
any right, title or interest, legal or equitable, as beneficiary of the estate
of Robert C. Gordon, in or to any of the Shares, including, without way of
limitation, the Ravenswood Capital Stock or the Telephone Capital Stock, or the
proceeds thereof.
"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; provided, however, that Material Adverse
Effect shall not include any federal or state regulation or deregulation, or any
changes in Regulations applicable to federal or state regulation of the
Business, occurring between the Execution Date and the Closing Date, and any
actions agreed to by the Purchaser.
"Order" shall mean any judgment, decree (consent or otherwise), order,
injunction (preliminary or permanent), stipulation, ruling, decree or consent of
or by an Authority that is adopted or otherwise takes effect on or before the
Closing Date.
"Ordinary Course of Business," "ordinary course," or "ordinary and
regular" shall mean action consistent with past practice and taken in the
ordinary course of the normal day-to-day operations of such Person.
"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, or being contested in good faith to the extent set
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forth in Schedule 2.16 hereto, (ii) such imperfections or irregularities of
title, 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, and do not have
a Material Adverse Effect on the value of such properties and assets, (iii)
Liens reflected in the Financial Statements, (iv) Liens imposed by law and
incurred in the ordinary course of business for obligations not yet due to
carriers, warehousemen, laborers and materialmen, (v) exceptions of record and
standard exceptions contained in title insurance policies or commitments for
issuances thereof as delivered to Purchaser by Seller, (vi) ownership interest
of Ravenswood in Telephone and Long Distance, and of Telephone in Gemcell, (vii)
limitations imposed pursuant to the Regulations of any applicable Authority, and
(viii) prior to the Closing Date, statutory Liens for Taxes due from the Estate
of Robert C. Gordon (all of which statutory Tax Liens will be removed and
cancelled of record prior to the Closing Date).
"Person" shall mean any corporation, partnership, joint venture,
organization, entity, Authority or natural person, together with any and all
heirs, successors, representatives and assigns thereof, and shall specifically
include, without way of limitation, the city of El Paso, Illinois.
"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.
"Purchase Price Escrow Agreement" shall have the meaning ascribed to such
term in Section 4.17 hereof.
"Purchaser" 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
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hereto shall mean the Purchaser and any Assignee described in Section 12.5.
"Regulation" shall mean any law, statute, regulation, ordinance,
requirement, rule, executive order or binding action of or by an Authority that
is adopted or otherwise takes effect on or before the Closing Date.
"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.
"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), invested
capital, stamp, leasing, lease, user, excise, duty, franchise, transfer,
license, withholding, payroll, employment, 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.
"Unaudited Financial Statements" shall have the meaning ascribed to such
term in Section 2.9 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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Notices to Purchaser: With a Copy to:
-------------------- --------------
MJD Services Corp. 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
Executive Vice President ATTN: Shirley J. Linn, Esq.
(704) 344-8150 (Phone) (704) 333-1200 (Phone)
(704) 344-8121 (Fax) (704) 377-9630 (Fax)
Notices to the Seller,
or the Company With a Copy to:
---------------------- --------------
Carla J. Brownlee, President David I. Reader, Esq.
Ravenswood Communications, Inc. Kraskin, Lesse & Cosson, L.L.P.
2652 N. 3853 Road 2120 L. Street, Suite 520
Sheridan, IL 60551 Washington, DC 20037
(815) 496-2981 (Phone) (202) 296-8890 (Phone)
(815) 496-2412 (Fax) (202) 296-8893 (Fax)
And
Troy A. Fodor, Esq.
Law Offices of Douglas G. Brown
913 South Sixth Street
Springfield, Illinois 62730
(217) 753-3925 (Phone)
(217) 753-3937 (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
hereto; provided, that the Purchaser may, without the prior written consent of
the Seller or any other party hereto, 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 MJD Ventures, Inc. ("Assignee"), or (ii) its
lenders as collateral in connection with the financing of the transactions
contemplated hereby, provided, however, that
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Purchaser shall remain liable to perform the obligations of Purchaser under this
Agreement, and provided, further, however, that Purchaser shall notify Seller of
the Assignee within five (5) days of the assignment.
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; Construction. 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. No rule of construction
requiring interpretation against the drafting party hereof will apply in the
interpretation of this Agreement.
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 and the Confidentiality
Agreement embody 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.
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.
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Section 12.13 Expenses. Except as otherwise provided herein, 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 (which, with respect to such expenses incurred by or on
behalf of the Seller or the Company, shall be paid by the Seller and not by the
Company); provided, however, that the first Fifty Thousand Dollars ($50,000) of
such of Seller's expenses may be paid by the Company and on behalf of Seller
(and provided further, however, that notwithstanding the foregoing, the Seller
shall be solely responsible for the payment of any and all fees, costs and
expenses, including without limitation, attorneys fees, arising in connection
with claims with respect to title to and ownership of the Shares and with
respect to the Estate of Robert C. Gordon). Further the parties hereto agree
that the Company shall pay the fees and expenses of its ICC and its FCC counsel
with respect to the transactions contemplated by this Agreement, that Purchaser
shall pay the fees and expenses, including filing fees, of any filings made with
any Authority including filings with the ICC and FCC, and that Purchaser shall
bear the cost of any environmental assessment and/or environmental consultant.
Section 12.14 Time of the Essence. Time is strictly of the essence with
respect to the provisions of this Agreement.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Execution Date.
MJD SERVICES CORP.
/s/ Michael J. Stein
------------------------------
By: Michael J. Stein
Title: Vice President
/s/ Carla J. Brownlee (SEAL)
------------------------------
CARLA J. BROWNLEE
RAVENSWOOD COMMUNICATIONS, INC.
/s/ Carla J. Brownlee
------------------------------
By: Carla J. Brownlee
Title: President
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Exhibit A
Other Stockholders
None.
<PAGE>
Exhibit 4.17
Purchase Price Escrow Agreement
<PAGE>
Exhibit 7.7
Opinion of Seller's Counsel
<PAGE>
Exhibit 8.5
Opinion of Purchaser's Counsel
<PAGE>
UNDERWOOD KINSEY WARREN & TUCKER, P.A.
ATTORNEYS AT LAW
CHARLOTTE PLAZA BUILDING, SUITE 2020
201 SOUTH COLLEGE STREET
RUSSELL M. BLACK CHARLOTTE, NORTH CAROLINA 28244-2020
KIMBERLYE FAYSSOUX CORNELSON
RICHARD L. FARLEY
C. RALPH KINSEY, JR. TELEPHONE
SHIRLEY J. LINN 704-333-1200
JOHN H. NORTHEY III
FRANCIS M. PINCKNEY III
CARLTON A. SHANNON, JR. FACSIMILE
WILLIAM L. SITTON, JR. 704-377-9630
SUSAN L. SOWELL
ROBERT B. TUCKER, JR.
WILLIAM E. UNDERWOOD, JR.
JOSEPH WARREN III
[Closing Date]
Ms. Carla J. Brownlee
2652 N. 3853 Road
Sheridan, IL 60551
Dear Ms. Brownlee:
We have acted as counsel to MJD Services Corp., a Delaware corporation
("MJD" or "Purchaser"), in connection with the purchase by Purchaser of all of
the capital stock of Ravenswood Communications, Inc. (the "Company") from you
("Seller"), pursuant to a Stock Purchase Agreement entered into as of October
16, 1998 (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
<PAGE>
Ms. Carla J. Brownlee
[Closing Date]
Page 2
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 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 Purchase Agreement.
2. The execution and delivery of the Purchase 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,
<PAGE>
Ms. Carla J. Brownlee
[Closing Date]
Page 3
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 knowledge, MJD has given all notices to and has obtained from
all state and federal regulatory authorities 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.
<PAGE>
Ms. Carla J. Brownlee
[Closing Date]
Page 4
Very truly yours,
UNDERWOOD KINSEY WARREN & TUCKER, P.A.
<PAGE>
Exhibit 4.17
PURCHASE PRICE ESCROW AGREEMENT
<PAGE>
Exhibit 11.2
INDEMNITY ESCROW AGREEMENT
<PAGE>
Exhibit 11.2
INDEMNITY ESCROW AGREEMENT
THIS INDEMNITY ESCROW AGREEMENT (the "Indemnity Escrow Agreement") is made
as of ____________ ___, _____, between CARLA J. BROWNLEE, a resident of the
State of Illinois ("Brownlee"), MJD SERVICES CORP., a Delaware corporation
("Purchaser") and FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION, a
__________________ (the "Indemnity Escrow Agent").
STATEMENT OF PURPOSE
On or about October 16, 1998, Ravenswood Communications, Inc., Brownlee
and Purchaser, entered into a Stock Purchase Agreement (the "Purchase
Agreement"), and pursuant to the provisions of Section 9.2 of the Purchase
Agreement, Brownlee and Purchaser agreed that One Million Dollars ($1,000,000)
(the "Indemnity Escrow Funds") of the total purchase price otherwise payable to
Brownlee would be deposited with Indemnity Escrow Agent to secure Brownlee's
agreement to indemnify Purchaser as set forth in Sections 11.1, 11.2 and 11.3 of
the Purchase Agreement, all in accordance with the terms of this Indemnity
Escrow Agreement.
The Indemnity Escrow Agent has agreed to serve as escrow agent under this
Indemnity Escrow Agreement and to accept delivery of the Indemnity Escrow Funds
in accordance with the terms and conditions set out in this Indemnity 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 Indemnity Escrow
Agreement:
1. Deposit with Indemnity Escrow Agent. At Closing of the sale and
purchase of the Shares from Brownlee as provided in the Purchase Agreement,
Purchaser shall deliver to the Indemnity Escrow Agent the sum of One Million
Dollars ($1,000,000) to be held, administered and distributed by the Indemnity
Escrow Agent pursuant to the terms of this Indemnity Escrow Agreement.
<PAGE>
2. Indemnity Escrow Funds. Upon receipt of the Indemnity Escrow Funds, the
Indemnity Escrow Agent shall deposit the Indemnity Escrow Funds into an escrow
account (the "Indemnity Escrow Account") and shall hold, administer, invest and
distribute the Indemnity Escrow Funds in accordance with the terms of this
Indemnity Escrow Agreement. All references in this Indemnity Escrow Agreement to
Indemnity Escrow Funds shall include any investment of such funds and all
investment earnings thereon.
3. Purposes of Indemnity Escrow. The Indemnity Escrow Funds shall be used
solely for the purposes set forth in Sections 11.1, 11.2 and 11.3 of the
Purchase Agreement. The Escrow Funds shall not constitute an asset of Brownlee
until the distribution thereof to Brownlee in accordance with the terms of the
Purchase Agreement and of this Escrow Agreement.
4. Term. The term of this Indemnity Escrow Agreement ("Indemnity Escrow
Period") shall expire on the expiration of the Indemnification Period, as
defined in Section 11.1 of the Purchase Agreement, except that it shall be
automatically extended as necessary to provide for the disposition of any Claims
filed by Purchaser with the Indemnity Escrow Agent during such period, in
accordance with the procedures set forth in Section 5 hereof.
5. Disbursement of Indemnity Escrow Funds.
(a) In the event Purchaser determines that it is entitled to all or
any portion of the Indemnity Escrow Funds pursuant to Sections 11.1, 11.2
or 11.3 of the Purchase Agreement, Purchaser shall deliver written notice
to the Indemnity Escrow Agent and Brownlee, stating the factual basis for,
and the amount of, such entitlement ("Claim"). The written notice from
Purchaser to Brownlee shall include copies of all relevant information and
documents and shall be given within a period of thirty (30) days following
the discovery of the Claim by the Purchaser, provided however the failure
by Purchaser to give written notice within such time period shall not
impair the Purchaser's rights hereunder except to the extent that Brownlee
demonstrates that she is prejudiced thereby. Within twenty (20) days
following receipt by Brownlee of such written notice of the Claim,
Brownlee may deny all or any portion of the Claim by delivering written
notice to the Indemnity Escrow Agent and Purchaser, indicating the amount
or portion of the Claim which is denied and the factual basis for such
denial ("Denial").
-2-
<PAGE>
(b) In the event that Brownlee fails to timely deliver a Denial to
the Indemnity Escrow Agent, the Indemnity Escrow Agent shall immediately
release and distribute to Purchaser an amount equal to the Claim.
(c) In the event the Indemnity Escrow Agent receives a timely Denial
from Brownlee as to all or any portion of a Claim, the Indemnity Escrow
Agent shall (i) immediately distribute to Purchaser an amount, if any,
equal to the portion of the Claim that Brownlee 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 Indemnity Escrow Agent from Brownlee 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 entire Claim shall be deemed
denied. Purchaser and Brownlee agree to thereafter apply to such court for
an order submitting the matter to arbitration pursuant to Section 11.6(b)
of the Purchase Agreement.
(d) The Indemnity Escrow Agent shall distribute any portion of the
Indemnity Escrow Funds remaining in the Indemnity Escrow Agent's
possession, which are not the subject of a pending Claim, immediately upon
the expiration of the Indemnity Escrow Period to the escrow account
established under Section 4.17 of the Purchase Agreement, as Brownlee has
so instructed, for distribution in accordance with the provisions of the
agreement governing such account (the "Purchase Price Escrow Agreement"),
free and discharged from any further obligation with respect to the same
hereunder.
6. Release From Indemnity Escrow. As and when all of the Indemnity Escrow
Funds are either distributed as provided hereunder or deposited with the
registry of the court in interpleader, the Indemnity Escrow Agent shall be
released and discharged from any further obligation hereunder without further
action of any party. Compliance by the Indemnity 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 the Indemnity
Escrow Agent from all obligations and responsibility with respect to the
Indemnity Escrow Funds to which such order or judgment relates.
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<PAGE>
7. Investment of Indemnity Escrow Funds. The Indemnity Escrow Agent shall
hold the Indemnity Escrow Funds delivered to it under the terms of this
Indemnity Escrow Agreement and shall invest the Indemnity 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 another
appropriate and comparable authority (for example, the Federal Home Loan Bank
Board), or (ii) in any other investment upon which Brownlee and the Purchaser
shall agree.
8. Agreement of Indemnity Escrow Agent. The Indemnity Escrow Agent hereby
agrees to receive the Indemnity Escrow Funds and hold the same intact, and to
deposit the Indemnity Escrow Funds in accordance with the terms of this
Indemnity Escrow Agreement, and shall not permit any withdrawal except under the
terms of this Indemnity Escrow Agreement. The Indemnity Escrow Agent shall be
responsible only for the safekeeping and the deposit of the Indemnity Escrow
Funds and the disbursements or delivery in accordance with the terms of this
Indemnity Escrow Agreement. The Indemnity Escrow Agent shall not be responsible
for the appropriateness, sufficiency or accuracy of information contained in any
written notice.
9. Performance of Indemnity Escrow Agent.
(a) There are no implied duties under this Indemnity Escrow
Agreement. The duties, obligations and acts of the Indemnity Escrow Agent
shall be construed as purely ministerial in nature. Indemnity Escrow Agent
shall be responsible for only those duties expressly set forth in this
Indemnity Escrow Agreement. In performing any of its duties under this
Indemnity Escrow Agreement, or upon the claimed failure to perform its
duties under this Indemnity Escrow Agreement, Indemnity Escrow Agent shall
not be liable to anyone for any damages, losses, or expenses which they
may incur as a result of the Indemnity Escrow Agent so acting, or failing
to act; provided, however, Indemnity Escrow Agent shall be liable for
damages arising out of its willful default or gross negligence under this
Indemnity Escrow Agreement. Accordingly, Indemnity Escrow Agent 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 given with respect to
any questions relating to the duties and responsibilities of the Indemnity
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 Indemnity Escrow Agreement, not only as to its due
execution and to the validity
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<PAGE>
and effectiveness of its provisions but also as to the truth and accuracy
of any information contained in any notice or document, which the
Indemnity 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 Indemnity Escrow Agreement.
(b) Brownlee and the Purchaser agree to indemnify and hold harmless
Indemnity 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 Indemnity Escrow Agent or incurred by it in connection with its
acceptance of this appointment as Indemnity Escrow Agent or the
performance of its duties, including, without limitation, reasonable
attorneys fees and costs attributable to any interpleader action commenced
by the Indemnity Escrow Agent or any other litigation arising from this
Indemnity Escrow Agreement or involving the subject matter of this
Indemnity Escrow Agreement; provided, however, that if Indemnity Escrow
Agent shall be found guilty of willful default or gross negligence under
this Indemnity Escrow Agreement, then, in that event, Indemnity Escrow
Agent shall itself bear all such losses, claims, damages, liabilities and
expenses.
10. Fees of Indemnity Escrow Agent. For its ordinary services hereunder
(which shall include receipt, investment and disbursement of the Indemnity
Escrow Funds in the manner described in this Indemnity Escrow Agreement), the
Indemnity Escrow Agent shall receive compensation of one thousand eight hundred
seventy-five dollars ($1,875.00) to be paid equally by Purchaser and Brownlee
upon execution of this Indemnity Escrow Agreement and shall receive such
additional reasonable compensation during the term hereof as is commensurate
with its services provided hereunder as Indemnity Escrow Agent; any such
additional compensation to be similarly paid equally by Purchaser and Brownlee.
11. Resignation of Indemnity Escrow Agent. The Indemnity 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 Indemnity 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 Brownlee and the Purchaser, of a successor. From and after the effective date
of such resignation or appointment of a successor, the Indemnity Escrow Agent
shall not be obligated to perform any of the
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<PAGE>
duties of the Indemnity 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 Indemnity Escrow Agent. If Brownlee and the Purchaser are
unable to agree upon a successor Indemnity Escrow Agent within thirty (30) days
following notice of the Indemnity Escrow Agent's resignation, the Indemnity
Escrow Agent shall commence an action in interpleader and deposit the Indemnity
Escrow Funds with the registry of the court in the manner provided in Section 5
hereof.
12. Successor to Indemnity Escrow Agent. Any corporation resulting from
any merger or consolidation to which the Indemnity 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 Indemnity 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 Indemnity Escrow Agent pursuant to
paragraph 11 of this Indemnity Escrow Agreement, any person(s) or corporation
hereafter agreed upon by the parties shall be the successor escrow agent
hereunder.
13. Instructions and Notices. In executing and performing its duties
hereunder, except as otherwise provided, the Indemnity Escrow Agent shall be
entitled to rely upon instructions of Brownlee and the Purchaser. Any notice,
payment, demand, instruction or communication required or permitted to be given
by this Indemnity 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:
If to Brownlee:
--------------
Ms. Carla J. Brownlee
2652 N. 3853 Road
Sheridan, IL 60551
If to Purchaser:
---------------
MJD Services Corp.
521 East Morehead Street, Suite 520
Charlotte, NC 28202
Attention: Eugene B. Johnson, Execu-
tive Vice President
If to Indemnity Escrow Agent:
----------------------------
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<PAGE>
First Federal Savings and Loan Association
301 Fairway Drive
Bloomington, Illinois 61701
Attention: Donald Fernandes, President
Any notice sent by overnight messenger or hand delivery shall be deemed
made on the date received, and any notice sent by certified mail shall be deemed
made three (3) days after mailing.
14. Governing Law. This Indemnity Escrow Agreement shall be governed by
and construed in accordance with the laws of the State of North Carolina.
15. Headings. The headings in this Indemnity Escrow Agreement are inserted
for convenience and identification only and are in no way intended to interpret,
define or limit the scope, extent or intent of this Indemnity Escrow Agreement
or any provision of this Indemnity Escrow Agreement.
16. Severability. Each provision of this Indemnity Escrow Agreement is
intended to be severable. If any term or provision of this Indemnity 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
Indemnity Escrow Agreement.
17. Counterparts. This Indemnity 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 Indemnity Escrow
Agreement shall be valid unless produced in writing and signed by all of the
parties hereto.
19. Successors. This Indemnity Escrow Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors, legal representatives, assigns and transferees, as the case may be.
Indemnity Escrow Agent shall not be bound by or incur any liability with respect
to this Indemnity Escrow Agreement or any other agreement or understanding
between Brownlee and the Purchaser, except as in this Indemnity Escrow Agreement
expressly provided.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indemnity Escrow
Agreement to be executed as of the date first above written.
____________________________(SEAL)
CARLA J. BROWNLEE
MJD SERVICES CORP.
__________________________________
By: ______________________________
Its: _____________________________
Indemnity Escrow Agent
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION
By: _______________________________
Its: ______________________________
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<PAGE>
Schedule 2.3
No Violations
Approval of the ICC to the change of control and reorganization
contemplated by this transaction.
<PAGE>
Schedule 2.4
Subsidiaries and Investments
[Please confirm and supplement all of the following:]
1. Illinois Valley Cellular RSA 2, Inc. Illinois Valley Cellular RSA 2, Inc. is
a switching company for the three RSA 2 Partnerships referred to below. It
provides switching services and microwave links for the three cellular
partnerships. The El Paso Telephone Company is the record owner of 12.5% (700
shares of common stock, evidenced by share certificates _________) of the
currently issued and outstanding stock of Illinois Valley Cellular RSA 2, Inc.,
an Illinois corporation ("IVC RSA 2, Inc."). The El Paso Telephone Company paid
$_____________ for its shares. There is no Shareholders' Agreement with respect
to the stock of IVC RSA 2, Inc.
The El Paso Telephone Company is the guarantor of a loan in the amount of
$1,035,000.00 made by the Rural Telephone Finance Cooperative ("RTFC"), to IVC
RSA 2, Inc., pursuant to the terms of a Guaranty as dated
________________(August 3, 1992?), by The El Paso Telephone Company (the
"Guaranty"). The El Paso Telephone Company's maximum liability pursuant to the
Guaranty is limited in amount to $140,000.00. The maturity date of such note is
five (5) years from its date of execution. [Has it accordingly expired?]
Although the note is unexecuted, the executed Loan Agreement is dated October
30, 1992.
Additionally, Illinois Valley Cellular RSA 2, Inc. borrowed $317,393.00
from the RTFC pursuant to the terms of that certain Secured Promissory Note as
dated October 1, 1994. Said loan [was/was not] guaranteed by The El Paso
Telephone Company.
There exists an unexecuted, undated copy of an agreement between IVC RSA
2, Inc. and nine local independent telephone companies (one of which includes
The El Paso Telephone Company (the nine independents are referred to as
"Telco's") regarding what appears to be an indemnification by IVC RSA 2, Inc.
should any of the Telco's have to pay on a $125,000 guaranty of certain RTFC
debt. It is believed that the $125,000 guaranty referenced in such agreement is
an earlier version of the $140,000 guaranty. Pursuant to the terms of an
Indemnity Agreement with respect thereto, if IVC RSA 2, Inc. can't reimburse a
particular Telco, the others will do so pro rata.
<PAGE>
The El Paso Telephone Company was paid a $_____________ dividend from
Illinois Valley Cellular RSA 2, Inc. in 1996, and a $____________ dividend in
1997.
Gemcell, Inc. is a general partner holding a 6 2/3% interest in each
of the following partnerships (Gemcell, Inc.'s original
investment in these three partnerships was $_________.):
A. Illinois Valley Cellular RSA 2-I Partnership ("IVC RSA 2-I"), pursuant to
that certain Partnership Agreement as dated November 8, 1989 (the "IVC RSA
2-I Partnership Agreement").
Gemcell, Inc.'s interest in IVC RSA 2-I is subject to dilution in
the event of an additional capital call, as provided in Paragraph 5.2 of
the IVC RSA 2-I Partnership Agreement. The Operating Partner can make a
capital call pursuant to certain guidelines set forth in the Partnership
Agreement. Marsailles Telephone Company was elected as the operating
partner for IVC RSA 2-I in August 1991. It is believed that subsequent
thereto Marsailles Telephone Company transferred its partnership interest
to Marsailles Cellular, Inc., which has been recognized as operating
partner since such time. Marsailles Cellular, Inc. is also the operating
partner of IVC RSA 2-II and IVC RSA 2-III. Additionally, Paragraphs 7.5
and 7.6 of said Partnership Agreement contain restrictions on Gemcell,
Inc.'s rights to compete with IVC RSA 2-I in the business of sales or
resales of cellular service and equipment.
Regarding the transferability of Gemcell, Inc.'s partnership
interest, Article X of the IVC RSA 2-I Partnership Agreement contains
transfer restrictions. Specifically, Paragraph 10.1 provides a right of
first refusal in favor of all other partners prior to any transfer of
Gemcell, Inc.'s partnership interest. Per said paragraph, an assignment is
deemed to have occurred if in any single transaction or any series of
transactions, controlling interest in Gemcell, Inc. is transferred.
Notwithstanding the foregoing, Paragraph 10.1 goes on to provide that an
"assignment shall not be deemed to have occurred due to the transfer of
any or all of the outstanding capital stock of any corporate Partner or
its direct or indirect parent except in the instance where the cellular
interest hereunder is the only substantial asset in such company." This
provision appears to negate the existence of any right of first refusal
requirements under the
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<PAGE>
circumstances. Unauthorized transfers can result, among other things,
in a declaration of default and mandatory withdrawal, pursuant to the
provisions of Article XI of said Partnership Agreement.
Regarding potential liability, Gemcell, Inc. has unlimited liability
as a general partner pursuant to the provisions of Illinois law.
Additionally, the IVC RSA 2-I Partnership Agreement requires, at Paragraph
12.3, that partners make additional capital contributions in the event
deficit capital accounts exist at liquidation of either the partnership or
of a partner's interest. Additionally, the IVC RSA 2-I partners are
required under Paragraph 13.2 of said Partnership Agreement to indemnify
the Operating Partner, the Network Partner, and any officers, directors,
employees or agents of the foregoing against certain losses and damages.
IVC RSA 2-I is a party to a switching contract with Illinois Valley
Cellular RSA 2, Inc.
B. Illinois Valley Cellular RSA 2-II Partnership ("IVC RSA 2-II"), pursuant
to that certain Partnership Agreement as dated November ____, 1989 (the
"IVC RSA 2-II Partnership Agreement").
The IVC RSA 2-II Partnership Agreement contains provisions regarding
capital calls, dilution, restoration of deficit balances, restricted
competition, transferability of partnership interests, liability and
indemnification identical to those discussed above with respect to the IVC
RSA 2-I Partnership Agreement.
IVC RSA 2-II is a party to a switching contract with Illinois Valley
Cellular RSA 2, Inc.
C. Illinois Valley Cellular RSA 2-III Partnership ("IVC RSA 2-III"), pursuant
to that certain Partnership Agreement as dated November 6, 1989 (the "IVC
RSA 2-III Partnership Agreement").
The IVC RSA 2-III Partnership Agreement contains provisions
regarding capital calls, dilution, restoration of deficit balances,
restricted competition, transferability of partnership interests,
liability and indemnification identical to those discussed above with
respect to the IVC RSA 2-I Partnership Agreement.
-3-
<PAGE>
IVC RSA 2-III is a party to a switching contract with Illinois
Valley Cellular RSA 2, Inc.
Each of the foregoing three (3) partnerships is a party
to three (3) separate loans from the Rural Telephone Finance
Cooperative ("RTFC"). Specifically:
(i) IVC RSA 2-I
(1) Loan 1: $4,033,333.00, as evidenced by that certain
Secured Promissory Note as dated November 25, 1992.
(2) Loan 2: $873,111.00, as evidenced by that certain Secured
Promissory Note as dated February 4, 1993.
(3) Loan 3: $836,020.00, as evidenced by that certain Secured
Promissory Note as dated October 1, 1994.
(ii) IVC RSA 2-II
(1) Loan 1: $501,111.00, as evidenced by that certain Secured
Promissory Note as dated March 12, 1992.
(2) Loan 2: $418,788.00, as evidenced by that certain Secured
Promissory Note as dated ______________(December 9, 1992?).
(3) Loan 3: $874,458.00, as evidenced by that certain Secured
Promissory Note as dated October 1, 1994.
(iii) IVC RSA 2-III
(1) Loan 1: $1,361,111.00, as evidenced by that certain
Secured Promissory Note as dated March 12, 1992.
(2) Loan 2: $583,444.00, as evidenced by that certain Secured
Promissory Note as dated December 7, 1992.
(3) Loan 3: $1,281,802.00, as evidenced by that certain
Secured Promissory Note as dated October 1, 1994.
With respect to the loan described as "Loan 2" to IVC RSA 2-I,
Gemcell, Inc. pledged its partnership interests in IVC RSA 2-II and IVC
RSA 2-III to the RTFC, pursuant to the provisions of that certain
Partnership Interest Pledge and Security Agreement as dated February 4,
1993, and as
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<PAGE>
subsequently amended October 1, 1994, to include the loan described above
as "Loan 3" to IVC RSA 2-I.
With respect to the loan described as "Loan 2" to IVC RSA 2-II,
Gemcell, Inc. pledged its partnership interest in IVC RSA 2-III to the
RTFC, pursuant to the provisions of that certain Partnership Interest
Pledge and Security Agreement as dated December 9, 1992, and as
subsequently amended October 1, 1994, to include the loan described above
as "Loan 3" to IVC RSA 2-II.
With respect to the loan described as "Loan 2" to IVC RSA 2-III,
Gemcell, Inc. pledged its partnership interest in IVC RSA 2-II to the
RTFC, pursuant to the provisions of that certain Partnership Interest
Pledge and Security Agreement as dated December 7, 1992, and as
subsequently amended October 1, 1994, to include the loan described above
as "Loan 3" to IVC RSA 2-III.
See Schedule 2.14(a) for recording information relating to such
pledged partnership interests.
IVC RSA 2-I is owned 40% by Contel Cellular of Illinois, Inc. (now
GTE), as a general partner, and 60% by the subsidiaries or affiliates of
nine (9) independent telephone companies (the Company's subsidiary,
Gemcell, Inc. owns a 6.66% general partnership interest.) The same
information is also true as to RSA 2-II and RSA 2-III, except that in RSA
2-II Centel Cellular Company (now Sprint) is the 40% general partner and
in RSA 2-III Illinois SMSA Limited Partnership and Chicago SMSA Limited
Partnership, both of which are controlled by Ameritech Mobile
Communications, Inc., are each a 20% general partner.
2. See Schedule 2.17 for listing of checking and money market accounts, as well
as Certificates of Deposit held by the Company.
3. ANPI membership (Associated Network Partners, Inc.). Associated Network
Partners, Inc. ("ANPI") is a C corporation started by a number of independent
LECs in the State of Illinois to act as a buyers club for interexchange
telephone capacity so that the participating LECs or their affiliates could pool
their minutes in order to get volume discounts. Ravenswood Communications, Inc.
is a "Participant" under contract with ANPI and, separately, a shareholder of
ANPI. Like each other participant, its single share of common stock is
non-transferable, has no appurtenant rights to
-5-
<PAGE>
board membership and is, by agreement, worth $100 if Ravenswood Communications,
Inc. ceases being a Participant. As a Participant, Ravenswood Communications,
Inc. has a monthly commitment to ANPI to purchase at least $__________ worth of
toll services (this amount is basically based on ___% of a Participant's
historical usage). Under certain limited circumstances, that commitment could
rise to $_____________ per month. (ANPI, in turn, has a much larger monthly
commitment to its facilities providers, which commitment is less than the
overall participant commitment to ANPI.) There are certain penalties if
Ravenswood Communications, Inc. does not purchase at least its minimum worth of
toll services. Basically, it would be required to pay for such toll services,
whether it purchases them or not. ANPI is not subject to net profits since the
toll services it purchases are sold to its participants at cost with an
administrative charge assessed to match ANPI's administrative costs. As can be
more fully determined from the Participation Agreement, so long as ANPI's
participants meet their contractual commitments, ANPI is not subject to a net
loss. As also can be more fully determined from the Participation Agreement,
while Ravenswood Communications, Inc. does not have contingent liabilities for
the actions of ANPI, it does indemnify ANPI for any injury caused to ANPI by the
actions of Ravenswood Communications, Inc. There is no annual or recurring fee
for being a Participant.
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<PAGE>
Schedule 2.6
Corporate Books
Directors and Officers for Ravenswood Communications, Inc.:
Directors:
Officers: President
Vice President
Secretary
Treasurer
Directors and Officers for The El Paso Telephone Company:
Directors:
Officers: President
Vice President
Secretary
Treasurer
Directors and Officers for El Paso Long Distance Company:
Directors:
Officers: President
Vice President
Secretary
Treasurer
Directors and Officers for Gemcell, Inc.:
Directors:
Officers: President
Vice President
Secretary
Treasurer
<PAGE>
Schedule 2.7
List of Shareholders/Liens on Shares
Carla J. Brownlee 405 Shares, as evidenced by stock
certificate(s) __________________,
issued __________________________.
<PAGE>
Schedule 2.10
Employees
a. Ravenswood Communications, Inc.
Employees:
Full-time Employees:
Part-time Employees:
b. The El Paso Telephone Company
Employees:
Full-time Employees:
Part-time Employees:
c. El Paso Long Distance Company
Employees:
Full-time Employees:
Part-time Employees:
d. Gemcell, Inc.
Employees:
Full-time Employees:
Part-time Employees:
<PAGE>
Schedule 2.10
Employees
(Continued)
Vacation Schedule
<PAGE>
Schedule 2.11
Certain Changes
<PAGE>
Schedule 2.12
Contracts
<PAGE>
Schedule 2.14(a)
Owned Property/Liens
A. Real Property:
B. Personal Property:
C. Liens:
1. [Please provide information regarding any REA/RUS/RTB Liens on real and
personal property:]
2. Liens on capital stock of the Company or any subsidiaries as collateral:
Gemcell, Inc. has pledged its partnership interests (and certain rights
pertaining thereto) in Illinois Valley Cellular RSA 2-II Partnership and
Illinois Valley Cellular RSA 2-III Partnership to the Rural Telephone Finance
Cooperative, as more particularly detailed in that Uniform Commercial Code
Financing Statement filed with the Illinois Secretary of State on _____________,
bearing File No. __________. Additional information is set forth under Item 1 of
Schedule 2.4.
3. Other:
Except as expressly provided above, no other Liens exist.
<PAGE>
Schedule 2.14(b)
Leased Property
<PAGE>
Schedule 2.14(e)
Condition
<PAGE>
Schedule 2.15
Litigation
<PAGE>
Schedule 2.16
Tax Matters
<PAGE>
Schedule 2.17
Bank and Brokerage Accounts
[Please provide pertinent account information, including name and address of
bank, contact persons authorized signatories and account numbers]
Ravenswood Communications, Inc.
The El Paso Telephone Company
El Paso Long Distance Company
Gemcell, Inc.
<PAGE>
Schedule 2.19
Employee Benefit Plans
<PAGE>
Schedule 2.20
Intellectual Property
<PAGE>
Schedule 2.21
Environmental Matters
<PAGE>
Schedule 2.22
Capital Expenditures and Investments
<PAGE>
Schedule 2.23
Dealings with Affiliates
<PAGE>
Schedule 2.24
Insurance
<PAGE>
Schedule 2.26
Permits
The contemplated transaction would effect a transfer of control in The El
Paso Telephone Company ("Telephone"). Since Telephone is an Illinois public
utility, any changes in control require the prior approval of the ICC, for which
provision has been made in Sections 7.2 and 8.2 of this Agreement.
<PAGE>
Schedule 2.27
Absence of Undisclosed Liabilities/Corporate Debt
<PAGE>
Schedule 3.3
Consents and Authorizations of Purchaser
Approval of the Board of Directors and shareholders of Ravenswood,
of Telephone, of Long Distance and of Gemcell was obtained on
_________________________.
Approval of the Board of Directors of MJD Ventures, Inc. was
obtained on ___________________.
<PAGE>
Schedule 4.14
Article IV Disclosure Statement
<PAGE>
Exhibit 2.11
STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBITS
Exhibit A............. List of Shareholders
Exhibit B............. List of Excluded Assets
Exhibit C............. Form of Transition Services Agreement
Exhibit D............. Form of Noncompetition Agreement
Exhibit E............. Opinion of Buyer's Counsel
Exhibit F............. Opinion of the Shareholders', Armour's and
Bridgewater's Counsel
<PAGE>
SCHEDULES
Schedule 4.6.......... Armour 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
...................... or Leased
Schedule 4.22......... Environmental Matters
Schedule 4.23......... Affiliate Transactions
Schedule 4.25......... Permits and Reports
Schedule 4.26......... Liabilities
Schedule 5.0 ......... Exceptions to Covenants
<PAGE>
This Stock Purchase Agreement (the "Agreement") is made as of December
24, 1998, among MJD Services Corp., a Delaware corporation (the "Buyer");
Armour Independent Telephone Co., a South Dakota corporation ("Armour");
Bridgewater-Canistota Independent Telephone Co., a South Dakota corporation
("Bridgewater"); and William G. Haugen, Sr., Marilyn M. Haugen, and William
G. Haugen, Jr., individuals and the holders of all of the outstanding stock
of Armour (collectively, the "Shareholders").
WHEREAS, the Shareholders own 100 percent of the issued and outstanding
shares of the common stock of Armour (the "Armour Stock"), with the number of
shares and percentages set forth on Exhibit A hereto; and
WHEREAS, Armour is the beneficial owner of 100 percent of Bridgewater's
issued and outstanding common stock; and
WHEREAS, Buyer desires to purchase the Armour Stock from the Shareholders,
and the Shareholders desire to sell the Armour 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 I.
AGREEMENT TO PURCHASE AND SELL
1.1 Purchase and Sale. At Closing (as defined below), Buyer shall purchase
the Armour Stock from the Shareholders, and the Shareholders shall sell the
Armour Stock to Buyer. The conveyance of the Armour Stock shall be made by the
Shareholders to Buyer free and clear of all options, liens, claims, restrictions
and encumbrances of any nature whatsoever (collectively, "Liens"). Exhibit B to
this Agreement sets forth a list of assets to be sold by Armour or distributed
to the Shareholders prior to Closing, and excluded from the assets to be owned
by Armour as of the Closing Date. The parties hereto acknowledge, without way of
limiting the foregoing, that Armour shall sell, prior to the Closing, all of its
16.57% partnership interest in the South Dakota RSA 7 Limited Partnership (the
"Cellular Interest"), and shall sell, transfer or otherwise divest itself of all
of its interest or assets held pursuant to that certain joint venture known as
the ABS LMDS Joint Venture (the "LMDS Interest"), and that the Shareholders
shall assume any and all liabilities arising from the ownership of the Cellular
Interest or the LMDS Interest, both prior to and subsequent to the Closing, as
well as those liabilities resulting from the transfer of the Cellular Interest
or the LMDS Interest, and shall indemnify Buyer with respect to such
liabilities, as provided in Section 6.1(e) hereof.
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1.2 Closing. The consummation of the transactions contemplated herein (the
"Closing") shall take place at the offices of Union Telephone Company, 116 North
Main Avenue, Hartford, South Dakota, 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").
1.3 Shareholders' Representative. William G. Haugen, Jr. shall be the
"Shareholders' Representative" or, in the event of his death or inability to so
act, William G. Haugen, Sr. shall be the Shareholders' Representative. The
Shareholders, by execution of this Agreement, authorize the Shareholders'
Representative to take such action on their behalf as the Shareholders'
Representative is herein authorized to take or as such Shareholders'
Representative may deem necessary or advisable in order to carry out the
purposes and intents of this Agreement.
Article 2
PURCHASE PRICE
2.1 Purchase Price. (a) Buyer shall purchase the Armour Stock from the
Shareholders for an aggregate purchase price of $2,000,000 (the "Base Purchase
Price"), plus the "Increase in Stockholders' Equity" as defined in accordance
with Section 2.1(b) below, which amount shall be payable in accordance with this
Article 2.
(b) The Base Purchase Price shall be adjusted by adding to it the
"Increase in Stockholders' Equity", determined as follows:
(i) Buyer and the Shareholders acknowledge that as of December 31,
1997, Armour's balance sheet reflected total stockholders' equity of $1,353,753.
The "Increase in Stockholders' Equity" shall be determined by:
(I) Subtracting the total Stockholders' Equity as of December 31,
1997 ($1,353,753) from the Total Stockholders' Equity of Armour (on a
consolidated basis) as of the Closing Date, and
(II) Adding Armour's investment in the Cellular Interest
as reflected on the December 31, 1997, balance sheet, which is
$908,967.
(ii) The sum of the Base Purchase Price and the Increase in
Stockholders' Equity as determined above, shall be referred to herein as the
Adjusted Purchase Price. The Adjusted Purchase Price shall be based on an
estimated closing balance sheet of Armour prepared in good faith by the Armour
accountants/consultants,
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subject to Buyer's review and approval thereof, which shall not be unreasonably
withheld.
2.2 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 Armour Stock, free and clear of all Liens, by delivering to Buyer stock
certificates representing the Armour 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 the Adjusted Purchase Price, as determined in accordance with Section
2.1 above; (the "Closing Payment"); and (iii) the parties shall deliver to each
other the documents required under this Agreement to be delivered at or prior to
the Closing.
2.3 Post-Closing Adjustments to the Purchase Price. The Closing Payment
payable by Buyer to the Shareholders on the Closing Date pursuant to Section 2.2
hereof may be adjusted as follows. Within sixty (60) days after the Closing
Date, Buyer and the Shareholders shall prepare a closing balance sheet for
Armour 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 Armour's past practices.
The amount of the Adjusted Purchase Price shall be increased or decreased, as
the case may be, by the difference, if any, between the Adjusted Purchase Price
determined in good faith as of the Closing Date and the Adjusted Purchase Price
as such is determined based on the Closing Balance Sheet. If, as a result of the
foregoing adjustment, the Adjusted Purchase Price is increased, Buyer shall pay
the Shareholders, in accordance with their Percentage Interests, 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, in accordance with their Percentage
Interests, 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 Armour, Bridgewater 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 engaged,
to own, lease and operate its properties and to enter into and perform its
obligations under this Agreement.
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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, 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 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 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 local, state and federal regulatory authorities
any approvals, consents, permits and authorizations required in order to
consummate the transactions contemplated in accordance with this Agreement, all
as more particularly provided in Section 7.1 hereof.
3.4 Access to Books and Records. Buyer has carefully reviewed this
Agreement and in deciding to purchase the Armour Stock has reviewed and is
continuing to review information set forth in the books and records of Armour
and Bridgewater. Buyer acknowledges and agrees that, to the best of its
knowledge, all documents, records and books pertaining to this transaction
requested to date have been made available for inspection by Buyer and its
representatives. Buyer has had and continues to have a reasonable opportunity to
ask questions of and receive answers from the Shareholders and Armour concerning
all aspects of the business of Armour and Bridgewater, including, without
limitation, their assets and liabilities, and, to the best of its knowledge, all
such questions to date 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 Armour Stock and to
make an informed investment decision with respect thereto.
3.5 Investment Intent. Buyer is acquiring the Armour 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.
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Article 4
REPRESENTATIONS AND WARRANTIES OF ARMOUR, BRIDGEWATER
AND THE SHAREHOLDERS
For the purpose of inducing Buyer to enter into this Agreement, Armour,
Bridgewater, and the Shareholders, jointly and severally, hereby make the
following representations and warranties:
4.1 Organization and Qualification of Armour and Bridgewater. Armour 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. Armour is the owner of
100 percent of the issued and outstanding capital stock of Bridgewater, except
for directors' qualifying shares (all of which shall be assigned at Closing,
without additional consideration, to one or more directors nominated by Buyer).
(b) Bridgewater 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.
4.2 Organizational Documents. Armour has delivered to Buyer a true and
correct copy of the Articles of Incorporation of Armour and the Articles of
Incorporation of Bridgewater, 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 Armour and Bridgewater as currently in effect, as certified by the
Secretary of Armour and Bridgewater, respectively.
4.3 Regulatory Approvals. At Closing, Armour and Bridgewater shall have
given all notices to and have obtained from all local, state and federal
regulatory authorities any approvals, consents, permits and authorizations
required in order to consummate the transactions contemplated in accordance with
this Agreement, all as more particularly provided in Section 7.1 hereof.
4.4 Authorization of Agreement. The execution and delivery of this
Agreement has been duly authorized and approved by Armour's board of directors
and the Shareholders. This Agreement is a valid and binding obligation of
Armour, Bridgewater 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 Armour, Bridgewater, and/or the Shareholders have
been duly authorized to do so by all necessary action of Armour, Bridgewater,
and its Shareholders.
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4.5 Capital Stock of Armour and Bridgewater.
(a) The authorized capital stock of Armour consists of 6,000 shares of
$100.00 par value common stock and 400 shares of preferred stock with a par
value of $1,000 per share. The Shareholders are the beneficial owners of all of
the Armour Stock, which constitutes 100 percent of Armour's issued and
outstanding common stock (other than directors' qualifying shares). Directors'
qualifying shares of Armour Stock which are issued and outstanding are set forth
on Schedule 4.5. Two hundred (200) shares of preferred stock are issued and
outstanding, and except as set forth on Schedule 4.5, are owned of record, free
and clear of all Liens, by Union Telephone Company, a South Dakota corporation.
All of the issued and outstanding shares of the Armour 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 Armour Stock, as provided in Section 10.5 of this Agreement,
will pass good and marketable title to the Armour Stock to Buyer free and clear
of all Liens. There are no outstanding warrants, options, rights, calls or other
commitments of any nature relating to the Armour Stock, and there are no
outstanding securities or debt obligations of any kind convertible into shares
of capital stock of Armour. None of the issued and outstanding shares of capital
stock of Armour was issued in violation of preemptive rights.
(b) The authorized capital stock of Bridgewater consists of 10,000 shares
of common stock, $10.00 per share par value. Armour is the beneficial owner of
100 percent of Bridgewater's issued and outstanding common stock (other than
directors' qualifying shares) (the "Bridgewater Stock"). There are 10,000 shares
of Bridgewater Stock issued and outstanding. All of the issued and outstanding
shares of the Bridgewater 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 Armour. The purchase by Buyer of the Armour Stock
pursuant to the terms of this Agreement will pass good and marketable title to
the Bridgewater Stock to Buyer, free and clear of all Liens. There are no
outstanding warrants, options, rights, calls or other commitments of any nature
relating to the Bridgewater Stock, and there are no outstanding securities or
debt obligations of any kind convertible into shares of capital stock of
Bridgewater. None of the issued and outstanding shares of capital stock of
Bridgewater was issued in violation of preemptive rights.
4.6 Financial Statements of Armour. Armour has delivered to Buyer copies
of the audited consolidated financial statements of Armour for the years ended
December 31, 1997 and 1996 (the "Armour 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 Armour Financial Statements are contained in Schedule 4.6. The
Armour Financial Statements were prepared in accordance with generally accepted
accounting principles applied on a consistent basis and fairly present the
financial condition of Armour as of their respective dates and the results of
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operations of Armour for the periods ended December 31, 1997, and December 31,
1996, respectively. Armour and Bridgewater will supply to Buyer any and all
interim financial statements of Armour and Bridgewater as shall be available,
including, without limitation, those for the 12-month period ending December 31,
1998 (the "Interim Financial Statements"). The Interim Financial Statements
shall be prepared in accordance with generally accepted accounting principles
applied on a consistent basis, subject to customary year-end adjustments, and
shall present fairly the financial condition of Armour and Bridgewater for the
period(s) covered thereby.
4.7 Absence of Material Changes. Since December 31, 1997, except as
disclosed on Schedule 4.7, and excluding Armour's cellular and LMDS businesses,
Armour and Bridgewater have each operated its business in the ordinary course
and there has not been:
(a) Any change in the financial condition, assets, liabilities or
operations of Armour or Bridgewater 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 Armour or Bridgewater, respectively;
(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 Armour or Bridgewater;
(c) Any issuance or sale or agreement to issue or sell any stock,
bonds, notes or other corporate securities or long-term debt of Armour or
Bridgewater;
(d) Any granting of options, warrants or other rights calling for
the issuance of stock or other corporate securities of Armour or
Bridgewater;
(e) Any merger or consolidation involving Armour or Bridgewater 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 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 Armour or
Bridgewater;
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(g) Any material transaction entered into by Armour or Bridgewater
other than in the ordinary course of business or any transaction or series
of related transactions in the ordinary course of business (including a
capital expenditure) in excess of $25,000;
(h) Any material change in the accounting methods or practices of
Armour or Bridgewater or any material change in depreciation or
amortization or rates theretofore adopted by Armour or Bridgewater, except
for those changes affecting the telephone industry generally;
(i) Any payment of a dividend or payment in the form of a
distribution to the Shareholders or any member of their family; or
(j) Any agreement or commitment by Armour or Bridgewater (or any
understanding between Armour or Bridgewater 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 Armour and Bridgewater is
accurately reflected on the Armour Financial Statements, except for: (i)
accounts payable incurred in the ordinary course of business since December 31,
1997, and (ii) changes reflecting payments made by Armour or Bridgewater of its
long-term indebtedness, all of which shall be accurately reflected on the
Interim Financial Statements. Neither Armour nor Bridgewater are 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 Armour or Bridgewater or against the Armour
Stock or Bridgewater Stock or the Shareholders, or consent decrees or
injunctions to which Armour or Bridgewater or the Armour Stock or Bridgewater
Stock or the Shareholders are subject, and there is no litigation, claim or
proceeding pending, or to the knowledge of the Shareholders, Armour or
Bridgewater threatened, against or relating to Armour or Bridgewater or against
the Armour Stock or Bridgewater Stock or the Shareholders or the properties or
businesses of Armour or Bridgewater, nor do the Shareholders, Armour or
Bridgewater know or have reasonable grounds to know of any basis for any such
action or of any governmental investigation relating to the Shareholders, Armour
or Bridgewater or the properties or operations of Armour or Bridgewater.
4.10 Compliance With Laws. Armour and Bridgewater have each 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 Armour, Bridgewater nor
the Shareholders have received any notice or warning from any governmental
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authority with respect to any failure or alleged failure of Armour, Bridgewater
or any of the Shareholders to comply with any applicable law, regulation or
order and, to the best knowledge of Armour, Bridgewater and the Shareholders, no
such notice or warning has been proposed or threatened.
4.11 Benefit Plans. All employee benefit plans to which Armour or
Bridgewater pays benefits or premiums on behalf of its employees are listed on
Schedule 4.11 (the "Plans"). Except as disclosed on Schedule 4.11, Armour and
Bridgewater do not have in effect and have 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 Armour or
Bridgewater paying or obligated to pay any bonus, deferred compensation,
pension, profit sharing, severance, retirement allowance or other fringe benefit
to any party whatsoever. 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 Armour or
Bridgewater.
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 Armour or
Bridgewater or any instrument or agreement to which Armour, Bridgewater or the
Shareholders are a party or are bound which would have a material adverse effect
on Armour's or Bridgewater's properties or operations; (ii) violate any
judgment, order, injunction, decree or award against or binding upon Armour or
Bridgewater or upon the Armour Stock or Bridgewater Stock or other securities,
property or business of Armour or Bridgewater which would have a material
adverse effect on Armour's or Bridgewater's properties or operations; (iii)
result in the creation of any material lien, charge or encumbrance upon the
properties or assets of Armour or Bridgewater or the Armour Stock or the
Bridgewater Stock; or (iv) violate any law or regulation of any jurisdiction
relating to Armour or Bridgewater or the Armour Stock or the Bridgewater Stock
or other securities, property or business of Armour or Bridgewater, 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 Armour and Bridgewater 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 Armour and Bridgewater 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 Armour and Bridgewater, and all issuances,
redemptions, transfers and cancellations of capital stock of each. True and
correct copies of the foregoing have been made available to Buyer.
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4.14 Subsidiaries and Investments. Except for Bridgewater and except as
disclosed on Schedule 4.14, Armour 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, Bridgewater 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.
4.15 Insurance. Attached hereto as Schedule 4.15 is a complete list of all
insurance policies currently maintained by Armour or Bridgewater, 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 Armour or Bridgewater 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
Armour and Bridgewater 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. Schedule 4.16 sets forth the policies
followed by Armour and Bridgewater with respect to vacation and sick-leave
for employees of such entities. Armour and Bridgewater each has paid or
made provision for the payment of all salaries and accrued wages, 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) Employment Agreement. Except as set forth on Schedule 4.16
hereto, neither Armour nor Bridgewater is a party to any (i) outstanding
employment agreements or contracts with officers or employees that are not
terminable at will without penalty, premium or continuing obligation, 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
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Armour or Bridgewater, nor do the Shareholders, Armour or Bridgewater know
of any activities or proceedings of any labor union to organize any such
employees. Armour and Bridgewater have furnished to Buyer complete and
correct copies of all such agreements, if any ("Employment and Labor
Agreements"). Neither Armour nor Bridgewater has 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 Armour or Bridgewater pending before the Equal Employment
Opportunity Commission or any state or local agency responsible for the
prevention of unlawful employment practices, and neither the Shareholders,
Armour nor Bridgewater has 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 Armour or Bridgewater and,
to the knowledge of the Shareholders, Armour and Bridgewater, no such
investigation is in progress or threatened.
4.17 Contracts.
(a) Generally. Except as listed in Schedule 4.17, neither
Armour nor Bridgewater is 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;
(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
Armour or Bridgewater;
(vi) A guarantee of any obligation;
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(vii) The lease (whether as lessee or lessor) or operation of
any leased property, real or personal, requiring total annual
payments in excess of $25,000;
(viii) Intangible property (including proprietary rights),
requiring total annual payments in excess of $25,000;
(ix) Express warranties given by Armour or Bridgewater 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 $25,000;
(xiii) Employees, independent contractors, consultants, or
other agents;
(xiv) Sales, commissions, advertising or marketing; or
(xv) 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 Armour or Bridgewater in excess of $25,000.
(b) Compliance. Armour and Bridgewater have each 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', Armour's and Bridgewater's
knowledge, 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 Shareholders, Armour or Bridgewater under
any contract required to be disclosed on Schedule 4.17. Except as
disclosed in Schedule 4.17, neither the Shareholders, Armour nor
Bridgewater has any 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.
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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
all real property and a list of personal property owned and used by Armour
and Bridgewater in the operation of their respective businesses and a list
of real and personal property to be excluded from the transactions
contemplated by this Agreement. Armour and Bridgewater each have good and
merchantable title to all real and personal property used in the operation
of their respective businesses, 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 specifically disclosed in the footnotes to the Armour
Financial Statements. All properties used in Armour's and Bridgewater's
respective business operations as of December 31, 1997 are reflected in
the Armour 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.
(b) Leases. Except as set forth on Schedule 4.19, neither Armour nor
Bridgewater are lessee under any lease for personal or real property.
(c) Liens. The real property owned by Armour or Bridgewater and the
buildings, 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. Armour's and
Bridgewater'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 Shareholders', Armour's or
Bridgewater'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 Armour's or Bridgewater's owned real property.
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(d) Utilities. Except as set forth on Schedule 4.19, the real
property owned by Armour or Bridgewater has access, sufficient for the
conduct of its business as presently conducted, to public roads and to all
utilities, including electricity, sanitary and storm sewer, potable water
and other utilities used in the operation of its business as presently
conducted.
(e) Condition. Since December 31, 1997, neither Armour nor
Bridgewater has 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) transactions otherwise consented to
in writing by Buyer, or (iii) transactions disclosed on Schedule 4.19.
Armour and Bridgewater each owns, leases 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
Armour or Bridgewater 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, and constitute all of the assets necessary for Buyer to
conduct the businesses of Armour and Bridgewater as presently conducted.
4.20 Tax Matters.
(a) Generally. Armour has timely filed all federal, state and local
tax reports, returns, information returns and any other documents required
to be filed by it, including returns covering Bridgewater (collectively,
"Tax Returns") and has duly paid 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, service, severance and other taxes, charges, fees, levies or
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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 Armour Financial
Statements and on the Closing Balance Sheet and on the books and records
of Armour in accordance with GAAP. All Taxes which are required to be
withheld or collected by Armour or Bridgewater 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 Armour or Bridgewater, except for liens for Taxes
not yet due and payable. Except as set forth on Schedule 4.20, Armour or
Bridgewater 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 Armour or Bridgewater, including those set forth
on the Armour Financial Statements, have been properly received by Armour
or Bridgewater 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', Armour's
and Bridgewater's knowledge are correct and complete in all material
respects, and to the best of the Shareholders', Armour's and Bridgewater's
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', Armour's and Bridgewater's 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.
(d) True and Complete Copies. The Shareholders and Armour have
delivered to Buyer true and complete copies of all Tax Returns filed by
Armour and/or Bridgewater with respect to its 1994, 1995, 1996 and 1997
fiscal years.
4.21 Intellectual Property. Neither Armour nor Bridgewater owns or has
applied for any registered patents, copyrights, trademarks or service marks. If
necessary, Armour and Bridgewater each holds valid licenses to use all
proprietary rights used in the operation of its business as presently conducted.
4.22 Environmental Matters. Armour and Bridgewater each has obtained all
environmental permits required in connection with the operation of its business.
Armour and Bridgewater each 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. Armour and
Bridgewater each currently possesses and maintains such environmental permits in
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its respective name, and no amendments or modifications to such environmental
permits or filings with any permitting authority are required to permit the
acquisition of the Armour Stock or Bridgewater 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', Armour's and Bridgewater's knowledge,
threatened by any authority or other entity with respect to Armour or
Bridgewater relating to any environmental permit, license or authorization
required in connection with the conduct of business of Armour or
Bridgewater 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 the Shareholders', Armour's and
Bridgewater's knowledge, in connection with the real property used, owned
or leased by Armour or Bridgewater, except as set forth in Schedule 4.22.
(i) Neither Armour nor Bridgewater has handled any Hazardous
Material on any property now or previously owned or leased by Armour
or Bridgewater.
(ii) No PCB or asbestos is or has been present at any property now
or previously owned or leased by Armour or Bridgewater.
(iii) There are no underground storage tanks for Hazardous
Materials, active or abandoned, at any property now or previously
owned or leased by Armour or Bridgewater.
(iv) There has been no release of Hazardous Materials at, or under
any property now or previously owned or leased by Armour or
Bridgewater.
(c) Transportation. Neither Armour nor Bridgewater has (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.
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(d) Notification of Release. No oral or written notification of a
"Release" (as defined in Section 9601(22) of Title 42 of the United States
Code) of a Hazardous Material has been filed by or on behalf of Armour or
Bridgewater, and no property now or previously owned or leased by Armour
or Bridgewater 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 Armour
or Bridgewater, and no government actions have been taken or are
threatened which could subject any of such properties to such Liens.
Neither Armour nor Bridgewater is 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 4.22, there
have been no Phase I or Phase II environmental site assessments conducted
by or which are in the possession of the Shareholders, Armour or
Bridgewater in relation to any property or facility now or previously
owned or leased by Armour or Bridgewater.
4.23 Dealings with Affiliates. Schedule 4.23 sets forth a complete and
accurate list of all written contracts between Armour or Bridgewater and any one
or more of its Affiliates. For purposes of this Agreement, "Affiliate" shall
mean, with regard to any person or entity, any person or entity which, directly
or indirectly, controls, is controlled by, or is under common control with, such
person or entity and, with respect to any 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 or entity, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such person or entity, whether through the ownership of voting
securities, by contract or otherwise. Except as set forth in Schedule 4.23,
since December 31, 1997, neither Armour nor Bridgewater has 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, Armour, Bridgewater or any of their Affiliates.
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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 Armour or Bridgewater in
connection with its operations. Such Permits are the only Permits that are
required for Armour or Bridgewater to conduct its business as presently
conducted. Each such Permit is in full force and effect, and neither the
Shareholders, Armour nor Bridgewater has received notice that any suspension,
cancellation or modification of the terms of any such Permit is threatened.
Armour and Bridgewater is each in full compliance in all material respects with
the terms of each such Permit, and the Shareholders, Armour and Bridgewater 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', Armour and Bridgewater's knowledge, (i) all returns, reports,
applications, statements and other documents required to be filed by Armour or
Bridgewater 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, (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, and (iii)
no other person or entity is currently operating or providing telephone service
within the exchange boundaries served as of the date hereof by Armour and
Bridgewater, and, to the best of the Shareholders', Armour's and Bridgewater's
knowledge, no other person or entity is anticipating or contemplating doing so.
4.26 Absence of Undisclosed Liabilities. Neither Armour nor Bridgewater
has 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 Armour Financial Statements, (ii) current liabilities incurred in the
ordinary course of business and consistent with past practice after the date of
the Armour Financial Statements which, individually and in the aggregate, do not
have, and cannot reasonably be expected to have, a material adverse effect, and
which shall be fully set forth in the Interim Financial Statements with respect
to the periods covered thereby, 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, Armour or
Bridgewater 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.
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Article 5
COVENANTS AND AGREEMENTS OF THE SHAREHOLDERS, ARMOUR AND BRIDGEWATER
Armour, Bridgewater and the Shareholders, jointly and severally, covenant
and agree with Buyer as follows, that from the date of this Agreement through
the Closing Date, 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 Armour or Bridgewater or in
the authorized or issued capital stock of Armour or Bridgewater, and Armour and
Bridgewater shall each 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. Neither Armour nor Bridgewater
shall (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 Armour or Bridgewater, respectively.
5.3 Conduct of Business. Except with the prior written approval of
Buyer or as shown on Schedule 5.0 hereto:
(a) The business of Armour and Bridgewater shall be conducted in the
same manner as presently being conducted and Armour and Bridgewater 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 (which changes shall
be specifically described on Schedule 5.0 hereto), excluding actions taken
with respect to the cellular and LMDS businesses as contemplated in this
Agreement;
(b) No written employment agreement or commitment to employees
(including any commitment to pay retirement, severance or other benefits)
shall be entered into by Armour or Bridgewater;
(c) No increase shall be made in the compensation or compensation
plans (including bonuses, commissions, severance pay and fringe benefits)
payable or to become payable to any officer, director or employee of
Armour or Bridgewater, except for those routine salary increases granted
to employees in the ordinary course of business and consistent with the
respective prior practices of Armour or Bridgewater, and provided with
respect to this Section 5.3(c), the approval of Buyer shall not be
unreasonably withheld;
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(d) Neither Armour nor Bridgewater shall (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 Armour or Bridgewater,
respectively;
(e) Neither Armour nor Bridgewater shall 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) Neither Armour nor Bridgewater shall 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 $25,000, excluding
actions taken with respect to the cellular and LMDS businesses as
contemplated in this Agreement.
5.4 Access to Properties. At all times prior to the Closing Date, Armour
and Bridgewater shall allow Buyer's employees, attorneys, accountants, agents
and other authorized and designated representatives full access during
reasonable business hours and after reasonable notice to Armour's and
Bridgewater's properties, books and records, including, without limitation,
deeds, title commitments, leases, 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 Armour and
Bridgewater. In order to maintain confidentiality, Buyer may have access to
Armour's and Bridgewater's offices and properties only upon the prior approval
of William G. Haugen, Jr., Vice President of Armour.
5.5 Directors, Officers, Operations. Armour and Bridgewater shall
each deliver to Buyer prior to Closing a list showing:
(a) The names of the Armour and Bridgewater directors and
officers, registered agent and registered office;
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(b) The banks and financial institutions in which Armour or
Bridgewater 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 Armour
or Bridgewater with copies thereof attached thereto.
5.6 Privileges. As of the Closing Date, Armour, Bridgewater and the
Shareholders shall terminate any "calling card" or other special privileges,
benefits or rights provided by Armour or Bridgewater to the Shareholders.
5.7 CommNet Cellular Numbers. From and after the Closing Date, Buyer
agrees that the Shareholders shall be entitled to receive five of the free
CommNet cellular telephone numbers and services received by Armour in its sales
of assets to CommNet Cellular, Inc. Shareholders shall pay any charges with
respect to such CommNet cellular telephone numbers to the extent Armour is
charged for such cellular telephone numbers after Closing Date. Notwithstanding
anything in this Agreement or otherwise to the contrary, Shareholders agree that
their obligations to pay any such charges owed by shareholders pursuant to this
Section 5.7 shall not be subject to the "Minimum Amount", or the "Maximum
Amount" indemnification limitations set forth in Section 6.1 below, and shall
survive the "Indemnification Period" set forth in Section 6.2 below.
5.8 Transfer of Cellular Interest and LMDS Interest. Notwithstanding
anything to the contrary herein, the parties acknowledge and agree that on or
prior to the Closing Date Armour shall transfer all of the Cellular Interest and
all of the LMDS Interest, in full compliance with all applicable contracts,
agreements, regulations, statutes and ordinances applicable to the ownership,
transfer or other disposition thereof, and shall provide Buyer with written
evidence thereof to the satisfaction of Buyer and its counsel. The Shareholders
shall indemnify Buyer with respect to any and all liabilities arising in
connection with the ownership or transfer of the Cellular Interest or the
ownership or transfer of the LMDS Interest, as more particularly provided in
Section 6.1 (e) hereof. The Shareholders shall obtain all necessary consents,
approvals, permits, authorizations and waivers pertaining to the transfer of the
Cellular Interest and the LMDS Interest, including, without way of limitation,
all necessary approvals of the South Dakota Public Utilities Commission, Federal
Communications Commission, and the Federal Trade Commission, if any, prior to
effectuating such transfer. Provided that the Shareholders comply with the
provisions of this Section, the transfers of the Cellular Interest and the LMDS
Interest shall not be deemed a breach of any representation or warranty
contained in this Agreement.
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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 Armour, Bridgewater or the
Shareholders made in this Agreement;
(b) All Taxes of the Shareholders or of Armour or Bridgewater
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 Armour
Financial Statements or Closing Balance Sheet;
(c) Any undisclosed liability of Armour or Bridgewater;
(d) Any actions, suits, proceedings, costs, expenses and legal fees
incident to any of the foregoing items listed under this Section 6.1.
(e) Any and all claims in any way relating to or arising out of the
ownership or the transfer of the Cellular Interest or the ownership or transfer
of the LMDS Interest, or the business or operations of the South Dakota 7 Sully
Limited Partnership, the Missouri Valley Cellular of South Dakota Limited
Partnership, Missouri Valley Cellular, Inc., or the ABS LMDS Joint Venture,
whether arising or made before or after the Closing Date, specifically
including, without way of limitation, claims arising in connection with the
transfer of the Cellular Interest or the transfer of the LMDS Interest.
Notwithstanding anything in this Agreement or otherwise to the contrary, the
parties specifically agree that the indemnification obligation of the
Shareholders with respect to any and all indemnifiable claims or events under
this Section 6.1(e) shall not be subject the "Minimum Amount" or the "Maximum
Amount" limitations set forth below, and shall survive the "Indemnification
Period" set forth in Section 6.2 below. It is the intent and agreement of the
parties that the Shareholders shall fully indemnify Buyer, Armour and
Bridgewater with respect to any and all damages, expenses, fees, costs and
claims pertaining to or arising from the Cellular Interest, the LMDS Interest or
the transfer thereof, and that such indemnification obligation survive and
continue until the expiration of all applicable statutes of limitations relating
thereto.
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 $25,000 (the "Minimum Amount"), and
only with respect to such amount in excess thereof. For purposes of determining
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the Minimum Amount, such amount shall include the losses, liabilities, claims,
costs, damages, expenses or deficiencies arising under the agreements of
Shareholders with Buyer to sell the Shareholders' shares of Union Telephone
Company and the Shareholders' shares of WMW Cable TV Co., as well as this
transaction. If such claims exceed the Minimum Amount, the Shareholders shall
indemnify Buyer for the excess amount of the claims pursuant to this section;
provided, however, that the Shareholders' total obligations to indemnify Buyer
pursuant to this Article 6 shall not exceed the lesser of: (i) $600,000, or (ii)
$600,000 minus any indemnification payments (including payment by set off) made
by Shareholders to Buyer pursuant to Shareholders' agreements with Buyer to sell
the Shareholders' shares of Union Telephone Company and the Shareholders' shares
of WMW Cable TV Co. (the "Maximum Amount").
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' Representative within the
later of (i) twelve (12) months after the Closing Date, or (ii) four (4) 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 or the incurring of such damages and expenses 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, Armour or Bridgewater 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; provided, however,
that neither the Shareholders, Armour nor Bridgewater shall, expect with the
prior written consent of Buyer, consent to the entry of any judgment or enter
into any settlement or compromise which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to Buyer of a release from
all liability with respect to the subject claim. With respect to all such third
party claims, Buyer shall have the right to take any actions or steps it deems
reasonable to avoid the occurrence of any prejudice to the rights of Buyer.
Buyer shall have the right to assume the defense of any such action with counsel
of Buyer's choosing, subject to Shareholders' consent, which shall not be
unreasonably withheld, at the Shareholders' sole cost, in the event such action
(i) includes a demand for injunctive or equitable relief in respect of Buyer,
Armour or Bridgewater, or (ii) is for an alleged amount of more than Fifty
Thousand Dollars ($50,000). With respect to all other claims by third parties
which may result in indemnification by the Shareholders hereunder, Buyer may
participate with counsel of its choosing at its cost.
6.3 Set Off Under Noncompetition Agreements. 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, Buyer shall have the right to set
off against any payments due from Buyer to the Shareholders under their
respective Noncompetition Agreements any amount for which Buyer is entitled to
indemnification by Shareholders under this Article 6. Any set off against such
payments shall be divided equally among payments to each of the Shareholders.
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Article 7
REGULATORY APPROVALS
7.1 Regulatory Approvals. Buyer shall manage, at its expense, the process
of obtaining and shall use its best efforts to obtain in an expeditious manner,
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, the South Dakota Public Utilities Commission,
the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvement
Act, and any other local, state or federal agency or municipality. 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. Armour, Bridgewater 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 Armour
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 and provided that Buyer shall, upon the written request of
the Shareholders' Representative, permit Armour's accountant to review and
participate in preparing such tax returns. 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 Armour'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 Armour 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. Armour, Bridgewater and the Shareholders agree that,
subject to compliance with any fiduciary duty, and excluding the actions taken
with respect to the cellular and LMDS businesses as contemplated in this
Agreement, neither they nor any of their agents or 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
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the sale of the Armour Stock or the Bridgewater 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 Armour or Bridgewater
or the acquisition of the Armour Stock or the Bridgewater Stock; or (iii) make
any information concerning Armour or the Armour Stock or Bridgewater or the
Bridgewater Stock available to any person for the purpose of affecting or
causing a disposition of Armour assets or the Armour Stock, or Bridgewater
assets or the Bridgewater Stock.
Article 9
CONDITIONS PRECEDENT TO OBLIGATIONS
OF ARMOUR, BRIDGEWATER AND THE SHAREHOLDERS
The obligations of Armour, Bridgewater 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), including without way of
limitation, all regulatory approvals contemplated by Section 7.1 hereof, 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 Armour, Bridgewater and the Shareholders, materially
adversely impact the financial condition of Armour or Bridgewater.
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9.5 Payment. Buyer shall pay the Adjusted Purchase Price in
accordance with Article 2.
9.6 No Litigation. No claim, suit, action, or other proceeding shall
be pending before any court or governmental body to restrain or prohibit the
consummation of the transactions hereunder.
9.7 Deliveries by Buyer. On or before the Closing Date, Buyer shall have
executed and delivered to Armour, Bridgewater and the Shareholders the
following:
(a) Transition Services Agreements for each Shareholder in
substantially the form attached hereto as Exhibit C; and
(b) Noncompetition Agreements for each Shareholder in
substantially the form attached hereto as Exhibit D.
9.8 Related Transactions. Armour, Bridgewater and the Shareholders shall
have evidence reasonably satisfactory to them that on or before the Closing Date
the transactions contemplated in the following agreements have been consummated
or are being consummated concurrently with closing under this Agreement: (i)
Stock Purchase Agreement, dated ______________, 1998, among Union Telephone
Company, the Shareholders and MJD Services Corp., as buyer; and (ii) Stock
Purchase Agreement, dated _____________________, 1998, among WMW Cable TV Co.,
the Shareholders and MJD Services Corp., as buyer; and (iii) the sale or
transfer of Armour's Cellular Interest and LMDS Interest, as contemplated in
this Agreement.
9.9 Opinion of Counsel. Buyer shall deliver at Closing an opinion of
counsel to Buyer in substantially the form attached hereto as Exhibit E.
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 Armour, Bridgewater 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
Armour or Bridgewater as contemplated in this Agreement); Armour, Bridgewater or
Shareholders shall advise Buyer in writing of any such resulting inaccuracies,
and Armour, Bridgewater 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.
29
<PAGE>
10.2 Certificate. Buyer shall have received a certificate, dated the
Closing Date, signed by Armour, Bridgewater and the Shareholders covering the
provisions of Section 10.1 hereof.
10.3 Certified Copy of Resolutions. Armour and Bridgewater shall each have
delivered to Buyer a copy, certified by the duly qualified and acting secretary
or assistant secretary of Armour and Bridgewater, respectively of resolutions
adopted by the board of directors and shareholders of Armour and Bridgewater
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), including, without way of
limitation, all regulatory approvals contemplated by Section 7.1 hereof, 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 Buyer, materially adversely impact the financial
condition of Armour or Bridgewater; provided that Buyer agrees that the
imposition of conditions of sale by the South Dakota Public Utilities Commission
which are similar to those imposed in the purchase of Kadoka Telephone Co. by an
affiliate of Buyer (Notice of Entry of Order TC96-167) shall not be deemed to
materially adversely impact the financial condition of Armour or Bridgewater.
10.5 Surrender of Certificates. The Shareholders shall have surrendered to
Buyer the certificates representing all of the issued and outstanding shares of
Armour Stock, and such certificates shall be duly endorsed in blank or shall
have duly executed blank stock powers attached thereto. Additionally, the
Shareholders shall have caused to be delivered to Buyer the certificates
representing all of the issued and outstanding shares of Bridgewater Stock, and
all of the issued and outstanding directors' shares (duly endorsed in blank or
with duly executed blank stock powers attached thereto).
10.6 Resignations. Buyer shall have received from each director and
officer of Armour and Bridgewater a written resignation from all Armour and
Bridgewater offices and directorships held, respectively, effective as of the
Closing Date, and shall have received from each of the Shareholders their
resignation as an employee of Armour and Bridgewater.
10.7 Deliveries by Shareholders. On or before the Closing Date,
Shareholders shall have executed and delivered to Buyer the following:
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(a) Transition Services Agreements for each Shareholder in substantially
the form attached hereto as Exhibit C; and
(b) Noncompetition Agreements for each Shareholder in substantially the
form attached hereto as Exhibit D.
10.8 No Material Adverse Change. Since December 31, 1997 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 Armour on a consolidated basis.
10.9 Delivery of Corporate Records. At Closing the Shareholders shall
deliver to Buyer the Armour and Bridgewater minute books and stock registers.
10.10 No Litigation. No claim, suit, action or other proceeding shall be
pending before any court or governmental body to restrain or prohibit the
consummation of the transactions contemplated hereunder.
10.11 Opinion of Counsel. The Shareholders shall deliver at Closing an
opinion of counsel to the Shareholders, Armour and Bridgewater in substantially
the form attached hereto as Exhibit F.
10.12 Related Transactions. The Buyer shall have evidence reasonably
satisfactory to it that on or before the Closing Date the transactions
contemplated in the following agreements have been consummated or are being
consummated concurrently with Closing under this Agreement: (i) Stock Purchase
Agreement, dated _____________________, 1998, among Union Telephone Company, the
Shareholders and MJD Services Corp., as buyer; and (ii) Stock Purchase
Agreement, dated _________________, 1998, among WMW Cable TV Co., the
Shareholders and MJD Services Corp., as buyer, and (iii) the sale or transfer of
Armour's Cellular Interest and LMDS Interest, as contemplated in this Agreement.
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 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
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(c) By the Shareholders in the event that any of the conditions set
forth in Article 9 of this Agreement shall not have been satisfied or
waived and Closing shall not have occurred on or before July 31, 1999, 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 July 31, 1999, 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 or to an
Affiliate 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:
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If to Buyer: If to Armour, Bridgewater
or Shareholders:
MJD Services Corp. c/o David Knudson, Esq.
521 East Morehead Street, Suite 250 Davenport Law Firm
Charlotte, North Carolina 28202 P.O. Box 1030
Fax #: (704) 344-8121 513 So. Main Avenue
Attention: Eugene Johnson Sioux Falls, South Dakota 57104
Executive Vice President Fax #: (605) 335-3639
with a copy to: with a copy to:
Underwood, Kinsey, Warren & Tucker, P.A. Dennis J. Fogland 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
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.
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<PAGE>
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 Confidential Information.
(a) The parties hereby acknowledge and agree that on and after the
date hereof, and provided that the party seeking to enforce the provisions
of this Section 12.12 is not then in default of its obligations hereunder,
each party shall hold in the strictest confidence, and shall not use or
disclose to any person, firm or corporation (other than on a need-to-know
basis), without the written authorization of the other party, any
Confidential Information in its possession pertaining to the other party,
except (i) as may be ordered by a court of competent jurisdiction of a
claim involving the subject matter of such Confidential Information, (ii)
as otherwise required by applicable law or regulation, or (iii) as
otherwise provided under Section 12.14 hereof. As used in this Agreement,
"Confidential Information" means the terms and conditions contained in
this Agreement, including the consideration payable hereunder, and all
information, documents and materials not generally available to the public
which have been provided by one party to the other in connection with the
transactions contemplated hereby or which otherwise relate to, this
Agreement. Armour and Buyer each acknowledge and agree that any breach of
this section would cause the other party irreparable harm. Accordingly,
the non-breaching party may seek and obtain injunctive relief against the
breach or threatened breach of this Section 12.12, in addition to any
other remedies to which such party may be entitled at law or in equity. If
the transactions contemplated by this Agreement shall not be consummated,
such confidence shall be maintained and such information shall not be used
in competition with Armour or the Buyer.
(b) Notwithstanding anything in this Agreement to the contrary, the
parties shall not be under any obligation to maintain in confidence any
portion of the information it has received in connection with the
transactions contemplated hereby which (i) is now, or which hereafter,
through no act or failure to act on the part of either party, becomes
generally known or available to the public, (ii) is known by the recipient
party at the time of the disclosure of such information, (iii) is
furnished to the other without restriction on disclosure, or (iv) is
hereafter furnished to a party by a third party, as a matter of right and
without restriction of disclosure.
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(c) Notwithstanding the foregoing, any party hereto may disclose the
nature and terms of this Agreement to any third party without the prior
written consent of any other party or parties hereto (i) as required to
obtain the consents, waivers and authorizations referenced in Sections
3.3, 4.3, 4.12, 7.1, 9.4 and 10.4 hereof, (ii) in connection with the
Buyer's financing of the transactions contemplated hereby, (iii) as
required by applicable law, and (iv) in connection with any securities law
filing.
12.13 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.
12.14 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 SERVICES CORP.,
a Delaware corporation
By: /s/ Michael J. Stein
---------------------------------
Title: Vice President
ARMOUR INDEPENDENT TELEPHONE CO.,
a South Dakota corporation
By: /s/ William G. Haugen
---------------------------------
Title: President
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BRIDGEWATER-CANISTOTA INDEPENDENT
TELEPHONE CO.,
a South Dakota corporation
By: /s/ William G. Haugen
---------------------------------
Title: President
/s/ William G. Haugen, Sr.
---------------------------------
WILLIAM G. HAUGEN, SR.
/s/ Marilyn M. Haugen
---------------------------------
MARILYN M. HAUGEN
/s/ William G. Haugen, Jr.
---------------------------------
WILLIAM G. HAUGEN, JR.
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<PAGE>
EXHIBIT A
Percentage of
Shareholder Number of Shares Owned Outstanding Common Stock
- ----------- ---------------------- ------------------------
William G. Haugen, Sr. 33_%
Marilyn M. Haugen ____ 33_%
William G. Haugen, Jr. ____ 33_%
==== =====
TOTAL: ______ 100%*
*Does not include 2 shares held as directors' qualifying shares.
<PAGE>
EXHIBIT B
EXCLUDED ASSETS
(1) Real Property: The East 16 feet of the South 34 feet (E 16' of S
34') of Lot 13, Block 13 in the City of Armour, South Dakota (vacant
lot, site of pre-1989 business office).
(2) Vehicles: 1994 Dodge Dakota SLT (William G. Haugen, Jr. personal
vehicle)
(3) Machinery:
(a) International Harvester Crawler Tractor, early 1950 vintage,
came with the company, collector value only;
(b) Case Vibratory Pull Plow, age unknown, came with the company,
collector value only.
(4) Miscellaneous:
(a) Various pictures and plaques which are located at the Armour
office.
(5) The Cellular Interest
(6) The LMDS Interest
<PAGE>
Exhibit 2.12
UNION TELEPHONE COMPANY
STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBITS
Exhibit A............. List of Shareholders
Exhibit B............. List of Excluded Assets
Exhibit C............. Form of Transition Services Agreement
Exhibit D............. Form of Noncompetition Agreement
Exhibit E............. Opinion of Buyer's Counsel
Exhibit F............. Opinion of the Shareholders' and Union's Counsel
<PAGE>
SCHEDULES
Schedule 4.6.......... Union 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
...................... or Leased
Schedule 4.22......... Environmental Matters
Schedule 4.23......... Affiliate Transactions
Schedule 4.25......... Permits and Reports
Schedule 4.26......... Liabilities
Schedule 5.0 ......... Exceptions to Covenants
<PAGE>
This Stock Purchase Agreement (the "Agreement") is made as of December
24, 1998, among MJD Services Corp., a Delaware corporation (the "Buyer");
Union Telephone Company of Hartford, a South Dakota corporation ("Union");
Union TeNET, Inc. a South Dakota corporation; KM Satellite, Inc., a South
Dakota corporation; and William G. Haugen, Sr., Marilyn M. Haugen, and
William G. Haugen, Jr., individuals and the majority holders of the
outstanding stock of Union (collectively, the "Shareholders").
WHEREAS, the Shareholders own 93.2 percent of the issued and outstanding
shares of the common stock of Union (the "Haugen Shares"), with the number of
shares and percentages set forth on Exhibit A hereto; and
WHEREAS, Union is the beneficial owner of 100 percent of the issued and
outstanding common stock of Union TelNet, Inc. and KM Satellite, Inc.; and
WHEREAS, Buyer desires to purchase all of the issued and outstanding
shares of common stock of Union, including the Haugen Shares from the
Shareholders, and the Shareholders desire to sell the Haugen Shares 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 I.
AGREEMENT TO PURCHASE AND SELL
1.1 Purchase and Sale. At Closing (as defined below), Buyer shall
purchase the Haugen Shares from the Shareholders and all shares of common stock
of Union offered for sale by Minority Shareholders (as defined below) at the
price and upon the terms and conditions set forth herein, and the Shareholders
shall sell the Haugen Shares to Buyer. The conveyance of the Haugen Shares shall
be made by the Shareholders to Buyer free and clear of all options, liens,
claims, restrictions and encumbrances of any nature whatsoever (collectively,
"Liens"). Exhibit B to this Agreement sets forth a list of assets to be sold by
Union or distributed to the Shareholders prior to Closing, and excluded from the
assets to be owned by Union as of the Closing Date. The parties hereto
acknowledge, without way of limiting the foregoing, that Union has sold, prior
to the execution of this Agreement: (i) all of its 11.25% limited partnership
interest in the Sioux Falls Cellular Limited Partnership, all of its 36,962.5
shares of capital stock of Dakota Systems, Inc., and all of its 65,536 shares of
capital stock of Eastern South Dakota Cellular, Inc. (the "Cellular Interest"),
and (ii) all properties, assets and interests owned or used by Union in
connection with its DIRECTV direct broadcast satellite business (the "DBS
Interest"), and that the Shareholders shall assume any and all liabilities
arising from the ownership of the Cellular Interest or the DBS Interest, both
prior to and subsequent to
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the Closing, as well as those liabilities resulting from the transfer of the
Cellular Interest or the DBS Interest, and shall indemnify Buyer with respect to
such liabilities, as provided in Section 6.1(e) hereof; provided, that Buyer
shall be subject to the noncompete entered into by Union with Pegasus
Communications Corporation in connection with the sale by Union of its DBS
Interest.
1.2 Equal Offer to Minority Shareholders. It is Buyer's desire to
purchase 100% of all issued and outstanding Union common stock at Closing. Buyer
agrees to offer the twelve (12) shareholders (the "Minority Shareholders")
owning the remaining twelve (12) shares of Union common stock not owned by the
Shareholders the same Price Per Share (as defined in Section 2.1 below) as it
agrees to pay to the Shareholders. The Shareholders agree to use their best
efforts to fully inform the Minority Shareholders of the transactions
contemplated by this Agreement and to obtain the sale of all shares held by the
Minority Shareholders; provided, that the purchase by Buyer of any shares held
by the Minority Shareholders is not a condition to Closing hereunder.
1.3 Closing. The consummation of the transactions contemplated herein
(the "Closing") shall take place at the offices of Union Telephone Company, 116
North Main Avenue, Hartford, South Dakota, 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").
1.4 Shareholders' Representative. William G. Haugen, Jr. shall be
the "Shareholders' Representative" or, in the event of his death or inability
to so act, William G. Haugen, Sr. shall be the Shareholders' Representative
with respect to the Shareholders. The Shareholders, by execution of this
Agreement, authorize the Shareholders' Representative to take such action on
their behalf as the Shareholders' Representative is herein authorized to take
or as such Shareholders' Representative may deem necessary or advisable in
order to carry out the purposes and intents of this Agreement.
1.5 Union Subsidiaries. For purposes of this Agreement, except where
expressly stated otherwise, all references to "Union," shall include references
to its wholly-owned subsidiaries, Union TelNet, Inc. and KM Satellite, Inc.
5
<PAGE>
Article 2
PURCHASE PRICE
2.1 Purchase Price. (a) Buyer shall purchase the shares of Union common
stock, including the Haugen Shares from the Shareholders, at a price per share
of Union common stock (defined as the "Price Per Share") equal to the Adjusted
Purchase Price (as defined below) divided by 174 (or, if different, the number
of shares of Union common stock issued and outstanding as of the Closing Date).
The Adjusted Purchase Price shall be the sum of $4,000,000 (the "Base Purchase
Price"), plus the "Increase in Stockholders' Equity" as defined in accordance
with Section 2.1(b) below, which amount shall be payable in accordance with this
Article 2, including the escrow provisions of Section 2.3 below.
(b) The Base Purchase Price shall be adjusted by adding to it the
"Increase in Stockholders' Equity", determined as follows:
(i) Buyer and the Shareholders acknowledge that as of December 31,
1997, Union's balance sheet reflected total stockholders' equity of $2,569,942.
The "Increase in Stockholders' Equity" shall be determined by:
(I) Subtracting the total Stockholders' Equity as of December 31,
1997 ($2,569,942) from the Total Stockholders' Equity of Union (on a
consolidated basis) as of the Closing Date, and
(II) Adding (x) Union's investment in the Cellular
Interest as reflected on the December 31, 1997, balance sheet,
which is $514,852, and (y) Union's investment in the DBS
Interest as reflected on the December 31, 1997, balance sheet,
which is $61,837.
(ii) The sum of the Base Purchase Price and the Increase in
Stockholders' Equity as determined above, shall be referred to herein as the
Adjusted Purchase Price. The Adjusted Purchase Price shall be based on an
estimated closing balance sheet of Union prepared in good faith by the Union
accountants/consultants, subject to Buyer's review and approval thereof, which
shall not be unreasonably withheld.
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<PAGE>
2.2 Closing Date Payment and Receipt of Shares. On the Closing Date, (i)
all Union shareholders selling shares of Union common stock, including the
Shareholders (defined herein as the "Selling Shareholders") will assign and
transfer to Buyer good and valid title in and to such shares of Union common
stock, including without limitation, the Haugen Shares, free and clear of all
Liens, by delivering to Buyer stock certificates representing the such shares of
Union common 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
Selling Shareholders, including the Shareholders, in accordance with the number
of shares of Union common stock shown on Exhibit A attached hereto, the amount
of the Price Per Share, as determined in accordance with Section 2.1 above,
multiplied by the number of shares of Union common stock shown on Exhibit A for
such Selling Shareholders being transferred to Buyer hereunder, except that with
respect to the Minority Shareholders, a portion of the purchase price shall be
deposited into escrow as provided in Section 2.3 below (the "Closing Payment");
and (iii) the parties shall deliver to each other the documents required under
this Agreement to be delivered at or prior to the Closing (which shall include,
with respect to those Minority Shareholders selling their shares of Union common
stock, appropriate representations and warranties as to ownership, authority and
the absence of Liens).
2.3 Post-Closing Adjustments to the Purchase Price. The Closing Payment
payable by Buyer to the Selling Shareholders on the Closing Date pursuant to
Section 2.2 hereof may be adjusted as follows. At the time of Closing, _________
that total portion of the Closing Payment attributable to, and to be paid to
Minority Shareholders who are also Selling Shareholders (referred to herein as
"Minority Selling Shareholder(s)") shall be reduced by $10,000, with such
Closing Payment made to each Minority Selling Shareholder reduced on a pro rata
basis. Such $10,000 shall be held in escrow for the benefit of the Minority
Selling Shareholders in accordance with the provisions of this Section 2.3. Such
escrow may be a law firm trust account designated by Union, or other designee
mutually acceptable to Union and Buyer (such entity is designated herein as the
"Escrow Agent"). No interest shall be paid on the funds held by the Escrow
Agent. Within ninety (90) days after the Closing Date, Buyer and the
Shareholders shall prepare a closing balance sheet for Union 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 Union's past practices. The amount of
the Adjusted Purchase Price shall be increased or decreased, as the case may be,
by the difference, if any, between the Adjusted Purchase Price determined in
good faith as of the Closing Date and the Adjusted Purchase Price as such is
determined based on the Closing Balance Sheet. If, as a result of the foregoing
adjustment, the Adjusted Purchase Price is increased, Buyer shall pay the
Selling Shareholders, in accordance with their percentage interests shown on
Exhibit A hereto relative to all Selling Shareholders (the "Percentage
Interests"), 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
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<PAGE>
the Closing Balance Sheet, and the Escrow Agent shall release all funds to the
Minority Selling Shareholders. If, as a result of the post-closing adjustment,
the Purchase Price is decreased, the Shareholders shall refund to Buyer, in
accordance with their Percentage Interests, 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, and the Escrow Agent shall
refund to Buyer the amount of the 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) owed by the Minority Selling Shareholders to Buyer in
accordance with their Percentage Interests. The remainder of such escrow funds
shall be released to the Minority Selling Shareholders by the Escrow Agent. All
Minority Selling Shareholders, as a condition to the sale of their shares to
Buyer hereunder, shall agree in writing to the terms and conditions of these
Section 2.3 post-closing adjustments.
Article 3
REPRESENTATIONS AND WARRANTIES OF BUYER
For the purpose of inducing Union 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 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, 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 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 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 local, state and federal regulatory authorities
any approvals, consents, permits and authorizations required in order to
consummate the transactions contemplated in accordance with this Agreement, all
as more particularly provided in Section 7.1 hereof.
3.4 Access to Books and Records. Buyer has carefully reviewed this
Agreement and in deciding to purchase the Union common stock has reviewed and is
continuing to review information set forth in the books and records of Union.
Buyer
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acknowledges and agrees that, to the best of its knowledge, all documents,
records and books pertaining to this transaction requested to date have been
made available for inspection by Buyer and its representatives. Buyer has had
and continues to have a reasonable opportunity to ask questions of and receive
answers from the Shareholders and Union concerning all aspects of the business
of Union, including, without limitation, their assets and liabilities, and, to
the best of its knowledge, all such questions to date 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 Union common stock and to make an informed investment decision
with respect thereto.
3.5 Investment Intent. Buyer is acquiring the Union common 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 UNION
AND THE SHAREHOLDERS
For the purpose of inducing Buyer to enter into this Agreement, Union and
the Shareholders, jointly and severally, hereby make the following
representations and warranties:
4.1 Organization and Qualification of Union. Union 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. Union is the owner of 100 percent of the issued and
outstanding capital stock of Union TelNet, Inc. and KM Satellite, Inc.
(b) Union TelNet, Inc. and KM Satellite, Inc. is each 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.
4.2 Organizational Documents. Union has delivered to Buyer a true and
correct copy of the Articles of Incorporation of Union, 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 Union as currently in effect, as
certified by the Secretary of Union.
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4.3 Regulatory Approvals. At Closing, Union shall have given all notices
to and have obtained from all local, state and federal regulatory authorities
any approvals, consents, permits and authorizations required in order to
consummate the transactions contemplated in accordance with this Agreement, all
as more particularly provided in Section 7.1 hereof.
4.4 Authorization of Agreement. The execution and delivery of this
Agreement has been duly authorized and approved by Union's board of directors
and the Shareholders. This Agreement is a valid and binding obligation of Union
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
Union and/or the Shareholders have been duly authorized to do so by all
necessary action of Union and its Shareholders.
4.5 Capital Stock of Union.
(a) The authorized capital stock of Union consists of 357 and 1/7 shares
of $70.00 par value common stock. The Shareholders are the beneficial owners of
that number of shares of Union common stock shown on Exhibit A, which
constitutes 93.2 percent of Union's issued and outstanding common stock.
Directors' qualifying shares of Union Stock which are issued and outstanding are
set forth on Schedule 4.5. All of the issued and outstanding shares of the Union
common 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 as described on Exhibit A. The delivery by the Shareholders to Buyer of a
certificate or certificates representing the Haugen Shares, as provided in
Section 10.5 of this Agreement, will pass good and marketable title to the
Haugen Shares to Buyer free and clear of all Liens. There are no outstanding
warrants, options, rights, calls or other commitments of any nature granted by
Union or relating to the Haugen Shares, and there are no outstanding securities
or debt obligations of any kind convertible into shares of capital stock of
Union. None of the issued and outstanding shares of capital stock of Union was
issued in violation of preemptive rights.
(b) The authorized capital stock of Union TelNET, Inc. consists of 100,000
shares of common stock, $1.00 per share par value. Union is the owner of 100
percent of Union TelNET, Inc.'s issued and outstanding common stock (the "UTI
Stock"). There are 25,000 shares of UTI Stock issued and outstanding. All of the
issued and outstanding shares of UTI 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 Union. Purchase by Buyer of the Union
Stock pursuant to the terms of this Agreement will pass good and marketable
title to the UTI Stock to Buyer, free and clear of all Liens.
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There are no outstanding warrants, options, rights, calls or other commitments
of any nature relating to the UTI Stock, and there are no outstanding securities
or debt obligations of any kind convertible into shares of capital stock of
Union TelNET, Inc. None of the issued and outstanding shares of capital stock of
Union TelNET, Inc. was issued in violation of preemptive rights.
(c) The authorized capital stock of KM Satellite, Inc. consists of 500,000
shares of common stock, $1.00 per share par value. Union is the beneficial owner
of 100 percent of KM Satellite, Inc.'s issued and outstanding common stock (the
"KM Stock"). There are [1,000 shares] of KM Stock issued and outstanding. All of
the issued and outstanding shares of KM 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 Union. The purchase by Buyer of the
Union Stock pursuant to the terms of this Agreement will pass good and
marketable title to the KM Stock to Buyer, free and clear of all Liens. There
are no outstanding warrants, options, rights, calls or other commitments of any
nature relating to the KM Stock, and there are no outstanding securities or debt
obligations of any kind convertible into shares of capital stock of KM
Satellite, Inc. None of the issued and outstanding shares of capital stock of KM
Satellite, Inc. was issued in violation of preemptive rights.
4.6 Financial Statements of Union. Union has delivered to Buyer copies of
the audited consolidated financial statements of Union for the years ended
December 31, 1997 and 1996 (the "Union 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 Union Financial Statements are contained in Schedule 4.6. The
Union Financial Statements were prepared in accordance with generally accepted
accounting principles applied on a consistent basis and fairly present the
financial condition of Union as of their respective dates and the results of
operations of Union for the periods ended December 31, 1997, and December 31,
1996, respectively. Union will supply to Buyer any and all interim financial
statements of Union as shall be available, including, without limitation, those
for the 12-month period ending December 31, 1998 (the "Interim Financial
Statements"). The Interim Financial Statements shall be prepared in accordance
with generally accepted accounting principles applied on a consistent basis,
subject to customary year-end adjustments, and shall present fairly the
financial condition of Union for the period(s) covered thereby.
4.7 Absence of Material Changes. Since December 31, 1997, except as
disclosed on Schedule 4.7, and excluding Union's cellular and DBS businesses,
Union 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 Union other than changes in the ordinary course of business,
none of which has
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individually or in the aggregate been materially adverse to the financial
condition, properties, assets, liabilities or operations of Union;
(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 Union;
(c) Any issuance or sale or agreement to issue or sell any stock,
bonds, notes or other corporate securities or long-term debt of Union;
(d) Any granting of options, warrants or other rights calling
for the issuance of stock or other corporate securities of Union;
(e) Any merger or consolidation involving Union 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 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 Union;
(g) Any material transaction entered into by Union other than in the
ordinary course of business or any transaction or series of related
transactions in the ordinary course of business (including a capital
expenditure) in excess of $25,000;
(h) Any material change in the accounting methods or practices of
Union or any material change in depreciation or amortization or rates
theretofore adopted by Union, except for those changes affecting the
telephone industry generally;
(i) Any payment of a dividend or payment in the form of a
distribution to the Shareholders or any member of their family; or
(j) Any agreement or commitment by Union (or any understanding
between Union 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 Union is accurately reflected
on the Union Financial Statements, except for: (i) accounts payable incurred in
the ordinary course of business since December 31, 1997, and (ii) changes
reflecting payments made by Union of its long-term indebtedness, all of which
shall be accurately reflected on the Interim Financial Statements. Union is not
in default with respect to any material indebtedness or in the performance,
observance or fulfillment of any material covenant or
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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 Union or against the Haugen Shares or the
Shareholders, or consent decrees or injunctions to which Union or the Haugen
Shares or the Shareholders are subject, and there is no litigation, claim or
proceeding pending, or to the knowledge of the Shareholders or Union, against or
relating to Union or against the Haugen Shares or the Shareholders or the
properties or businesses of Union, nor do the Shareholders or Union know or have
reasonable grounds to know of any basis for any such action or of any
governmental investigation relating to the Shareholders or Union or the
properties or operations of Union.
4.10 Compliance With Laws. Union 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 Union nor the Shareholders have received
any notice or warning from any governmental authority with respect to any
failure or alleged failure of Union or any of the Shareholders to comply with
any applicable law, regulation or order and, to the best knowledge of Union and
the Shareholders, no such notice or warning has been proposed or threatened.
4.11 Benefit Plans. All employee benefit plans to which Union pays
benefits or premiums on behalf of its employees are listed on Schedule 4.11 (the
"Plans"). Except as disclosed on Schedule 4.11, Union 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 Union paying or obligated to pay any bonus, deferred
compensation, pension, profit sharing, severance, retirement allowance or other
fringe benefit to any party whatsoever. 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
Union.
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 Union or any
instrument or agreement to which Union or the Shareholders are a party or are
bound which would have a material adverse effect on Union's
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properties or operations; (ii) violate any judgment, order, injunction, decree
or award against or binding upon Union or upon the Haugen Shares or other
securities, property or business of Union which would have a material adverse
effect on Union's properties or operations; (iii) result in the creation of any
material lien, charge or encumbrance upon the properties or assets of Union or
the Haugen Shares; or (iv) violate any law or regulation of any jurisdiction
relating to Union or the Haugen Shares or other securities, property or business
of Union, 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 Union 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 Union 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 Union, and all issuances, redemptions, transfers and cancellations
of capital stock of each. True and correct copies of the foregoing have been
made available to Buyer.
4.14 Subsidiaries and Investments. Except for Union TelNet, Inc. and KM
Satellite, Inc. and except as disclosed on Schedule 4.14, Union 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.
4.15 Insurance. Attached hereto as Schedule 4.15 is a complete list of all
insurance policies currently maintained by Union, 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 Union
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
Union 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. Schedule 4.16 sets forth the policies
followed by Union with respect to vacation and sick-leave for employees of
Union and/or its subsidiaries. Union has paid or made provision for the
payment of all salaries and accrued wages, 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
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yet due to such authority, all 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, Union is not a party to any (i) outstanding employment agreements
or contracts with officers or employees that are not terminable at will
without penalty, premium or continuing obligation, 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 Union, nor do
the Shareholders or Union know of any activities or proceedings of any
labor union to organize any such employees. Union has furnished to Buyer
complete and correct copies of all such agreements, if any ("Employment
and Labor Agreements"). Union has not breached or otherwise failed to
comply with any provisions of any Employment and Labor Agreement.
(d) Employment Claims. There are no charges with respect to or
relating to Union pending before the Equal Employment Opportunity
Commission or any state or local agency responsible for the prevention of
unlawful employment practices, and neither the Shareholders nor Union has
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 Union and, to the knowledge of the Shareholders and
Union, no such investigation is in progress or threatened.
4.17 Contracts.
(a) Generally. Except as listed in Schedule 4.17, Union 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;
(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
Union;
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(vi) A guarantee of any obligation;
(vii) The lease (whether as lessee or lessor) or operation of
any leased property, real or personal, requiring total annual
payments in excess of $25,000;
(viii) Intangible property (including proprietary rights),
requiring total annual payments in excess of $25,000;
(ix) Express warranties given by Union 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 $25,000;
(xiii) Employees, independent contractors, consultants, or
other agents;
(xiv) Sales, commissions, advertising or marketing; or
(xv) 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 Union in excess of $25,000.
(b) Compliance. Union 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' and Union's knowledge, 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
Shareholders' or Union under any contract required to be disclosed on
Schedule 4.17. Except as disclosed in Schedule 4.17, neither the
Shareholders nor Union has any 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.
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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
all real property and a list of personal property owned and used by Union
in the operation of its business and a list of real and personal property
to be excluded from the transactions contemplated by this Agreement. Union
has good and merchantable 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 specifically disclosed in the footnotes to the Union Financial
Statements. All properties used in Union's business operations as of
December 31, 1997 are reflected in the Union 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.
(b) Leases. Except as set forth on Schedule 4.19, Union is not a
lessee under any lease for personal or real property.
(c) Liens. The real property owned by Union and the buildings,
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. Union'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 Shareholders and Union's
knowledge, threatened or proposed action or proceeding
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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 Union's owned real property.
(d) Utilities. Except as set forth on Schedule 4.19, the real
property owned by Union has access, sufficient for the conduct of its
business as presently conducted, to public roads and to all utilities,
including electricity, sanitary and storm sewer, potable water and other
utilities used in the operation of its business as presently conducted.
(e) Condition. Since December 31, 1997, Union 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) transactions otherwise consented to in writing by Buyer,
or (iii) transactions disclosed on Schedule 4.19. Union owns, leases 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 Union 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, and constitute all of the assets necessary for
Buyer to conduct the businesses of Union as presently conducted.
4.20 Tax Matters.
(a) Generally. Union 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 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, service, 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 Union Financial Statements and on the Closing Balance Sheet
and on the books and records of Union in accordance with GAAP. All Taxes
which are required to be withheld or collected by Union 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
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or assets of Union, except for liens for Taxes not yet due and payable.
Except as set forth on Schedule 4.20, Union 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 Union, including those
set forth on the Union Financial Statements, have been properly received
by Union 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' and
Union's knowledge are correct and complete in all material respects, and
to the best of the Shareholders' and Union's 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' or Union's 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.
(d) True and Complete Copies. The Shareholders and Union have
delivered to Buyer true and complete copies of all Tax Returns filed by
Union with respect to its 1994, 1995, 1996 and 1997 fiscal years.
4.21 Intellectual Property. Union does not own or has not applied for any
registered patents, copyrights, trademarks or service marks. If necessary, Union
holds valid licenses to use all proprietary rights used in the operation of its
business as presently conducted.
4.22 Environmental Matters. Union has obtained all environmental permits
required in connection with the operation of its business. Union 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. Union currently possesses and maintains such environmental
permits in its respective 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 of Union common stock as contemplated
hereby. In addition, except as set forth in Schedule 4.22:
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(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 Union's knowledge, threatened by any
authority or other entity with respect to Union relating to any
environmental permit, license or authorization required in connection with
the conduct of business of Union 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 the Shareholders' and Union's knowledge, in
connection with the real property used, owned or leased by Union, except
as set forth in Schedule 4.22:
(i) Union has not handled any Hazardous Material on any property now
or previously owned or leased by Union.
(ii) No PCB or asbestos is or has been present at any property now
or previously owned or leased by Union.
(iii) There are no underground storage tanks for Hazardous
Materials, active or abandoned, at any property now or previously
owned or leased by Union.
(iv) There has been no release of Hazardous Materials at, or under
any property now or previously owned or leased by Union.
(c) Transportation. Union 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" (as defined in Section 9601(22) of Title 42 of the United States
Code) of a Hazardous Material has been filed by or on behalf of Union, and
no property now or previously owned or leased by Union 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.
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(e) Liens. There are no Liens arising under or pursuant to any
environmental laws on any of the real property owned or leased by Union,
and no government actions have been taken or are threatened which could
subject any of such properties to such Liens. Union 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 4.22, there
have been no Phase I or Phase II environmental site assessments conducted
by or which are in the possession of the Shareholders or Union in relation
to any property or facility now or previously owned or leased by Union.
4.23 Dealings with Affiliates. Schedule 4.23 sets forth a complete and
accurate list of all written contracts between Union and any one or more of its
Affiliates. For purposes of this Agreement, "Affiliate" shall mean, with regard
to any person or entity, any person or entity which, directly or indirectly,
controls, is controlled by, or is under common control with, such person or
entity and, with respect to any 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 or entity, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such person or entity, whether through the ownership of voting
securities, by contract or otherwise. Except as set forth in Schedule 4.23,
since December 31, 1997, Union 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 or Union 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 Union in connection with
its operations. Such Permits are the only Permits that are required for Union to
conduct its business as presently conducted. Each such Permit is in full force
and effect, and neither the Shareholders nor Union has received notice that any
suspension, cancellation or modification of the terms of any such Permit is
threatened. Union is in full compliance in all material respects with the terms
of each such Permit, and the Shareholders and Union 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
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currently exist, upon expiration of such Permit. Except as set forth on Schedule
4.25, to the best of Shareholders' and Union's knowledge, (i) all returns,
reports, applications, statements and other documents required to be filed by
Union 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, (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, and (iii) no other
person or entity is currently operating or providing telephone service within
the exchange boundaries served as of the date hereof by Union, and, to the best
of the Shareholders' and Union's knowledge, no other person or entity is
anticipating or contemplating doing so.
4.26 Absence of Undisclosed Liabilities. Union 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 Union
Financial Statements, (ii) current liabilities incurred in the ordinary course
of business and consistent with past practice after the date of the Union
Financial Statements which, individually and in the aggregate, do not have, and
cannot reasonably be expected to have, a material adverse effect, and which
shall be fully set forth in the Interim Financial Statements with respect to the
periods covered thereby, 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 Union
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 THE SHAREHOLDERS AND UNION
Union and the Shareholders, jointly and severally, covenant and agree with
Buyer as follows, that from the date of this Agreement through the Closing Date,
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 Union or in the authorized
or issued capital stock of Union, and Union shall maintain its corporate
existence and powers and shall use its reasonable best efforts to maintain the
goodwill and employees of its
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business.
5.2 Issuance or Purchase of Securities. Union 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 Union.
5.3 Conduct of Business. Except with the prior written approval of Buyer
or as shown on Schedule 5.0 hereto:
(a) The business of Union shall be conducted in the same manner as
presently being conducted and Union 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 (which changes shall be specifically described on
Schedule 5.0 hereto), excluding actions taken with respect to the cellular
and DBS businesses as contemplated in this Agreement;
(b) No written employment agreement or commitment to employees
(including any commitment to pay retirement, severance or other benefits)
shall be entered into by Union;
(c) No increase shall be made in the compensation or compensation
plans (including bonuses, commissions, severance pay and fringe benefits)
payable or to become payable to any officer, director or employee of
Union, except for those routine salary increases granted to employees in
the ordinary course of business and consistent with the respective prior
practices of Union, and provided with respect to this Section 5.3(c), the
approval of Buyer shall not be unreasonably withheld;
(d) Union 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 Union;
(e) Union 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
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(f) Union 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 $25,000, excluding actions taken with
respect to the cellular and DBS businesses as contemplated in this
Agreement.
5.4 Access to Properties. At all times prior to the Closing Date, Union
shall allow Buyer's employees, attorneys, accountants, agents and other
authorized and designated representatives full access during reasonable business
hours and after reasonable notice to Union's properties, books and records,
including, without limitation, deeds, title commitments, leases, 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 Union. In order to maintain confidentiality, Buyer
may have access to Union's offices and properties only upon the prior approval
of William G. Haugen, Jr., Vice President of Union.
5.5 Directors, Officers, Operations. Union shall deliver to Buyer prior to
Closing a list showing:
(a) The names of the Union directors and officers, registered agent
and registered office;
(b) The banks and financial institutions in which Union 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 Union
with copies thereof attached thereto.
5.6 Privileges. As of the Closing Date, Union and the Shareholders shall
terminate any "calling card" or other special privileges, benefits or rights
provided by Union to the Shareholders.
5.7 Residential Telephone Service/Internet Service.
(a) From and after the Closing Date, Buyer agrees to provide to the
Shareholders two fully featured lines (including voice messaging) for
residential local exchange telephone service without charge to each of the
Shareholders for so long as such person maintains a residence within Union's
existing exchange boundaries.
(b) From and after the Closing Date, Buyer agrees to provide internet
service without charge to each of the Shareholders for so long as such person
maintains a residence within Union's exchange boundaries, and for so long as
Union or Union TelNet,
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Inc. is a provider of internet services within Union's exchange boundaries.
5.8 Transfer of Cellular Interest and DBS Interest. Notwithstanding
anything to the contrary herein, the parties acknowledge and agree that prior to
the execution of this Agreement Union has sold and transferred all of the
Cellular Interest and all of the DBS Interest, in full compliance with all
applicable contracts, agreements, regulations, statutes and ordinances
applicable to the ownership, transfer or other disposition thereof, and shall
provide Buyer with written evidence thereof to the satisfaction of Buyer and its
counsel. The Shareholders shall indemnify Buyer with respect to any and all
liabilities arising in connection with the ownership or transfer of the Cellular
Interest or the ownership or transfer of the DBS Interest, as more particularly
provided in Section 6.1 (e) hereof. The Shareholders have obtained all necessary
consents, approvals, permits, authorizations and waivers pertaining to the
transfer of the Cellular Interest and the DBS Interest, including, without way
of limitation, all necessary approvals of the South Dakota Public Utilities
Commission, Federal Communications Commission, and the Federal Trade Commission,
if any, prior to effectuating such transfer. Provided that the Shareholders
comply with the provisions of this Section, the transfer of the Cellular
Interest and the DBS Interest shall not be deemed a breach of any representation
or warranty contained in this Agreement.
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 Union or the Shareholders made in
this Agreement;
(b) All Taxes of the Shareholders or of Union 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 Union Financial Statements or
Closing Balance Sheet;
(c) Any undisclosed liability of Union;
(d) Any actions, suits, proceedings, costs, expenses and legal fees
incident to any of the foregoing items listed under this Section 6.1.
(e) Any and all claims in any way relating to or arising out of the
ownership or the transfer of the Cellular Interest or the ownership or transfer
of the DBS
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Interest, or the business or operations of the Sioux Falls Cellular Limited
Partnership, Eastern South Dakota Cellular, Inc., Dakota Systems, Inc., or the
DBS business, whether arising or made before or after the Closing Date,
specifically including, without way of limitation, claims arising in connection
with the transfer of the Cellular Interest or the transfer of the DBS Interest;
provided, however, that compliance by Union with the DBS Noncompete after
Closing is expressly excluded. Notwithstanding anything in this Agreement or
otherwise to the contrary, the parties specifically agree that the
indemnification obligation of the Shareholders with respect to any and all
indemnifiable claims or events under this Section 6.1(e) shall not be subject,
or included within, to the "Minimum Amount" or the "Maximum Amount" limitations
set forth below, and shall survive the "Indemnification Period" set forth in
Section 6.2 below. It is the intent and agreement of the parties that the
Shareholders shall fully indemnify Buyer and Union with respect to any and all
damages, expenses, fees, costs and claims pertaining to or arising from the
Cellular Interest, the DBS Interest or the transfer thereof, and that such
indemnification obligation survive and continue until the expiration of all
applicable statutes of limitations relating thereto.
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 $25,000 (the "Minimum Amount"), and
only with respect to such amount in excess thereof. For purposes of determining
the Minimum Amount, such amount shall include the losses, liabilities, claims,
costs, damages, expenses or deficiencies arising under the agreements of
Shareholders with Buyer to sell the Shareholders' shares of Armour Independent
Telephone Co. and the Shareholders' shares of WMW Cable TV Co., as well as this
transaction. If such claims exceed the Minimum Amount, the Shareholders shall
indemnify Buyer for the excess amount of the claims pursuant to this section;
provided, however, that the Shareholders' total obligations to indemnify Buyer
pursuant to this Article 6 shall not exceed the lesser of: (i) $600,000, or (ii)
$600,000 minus any indemnification payments (including payment by set off) made
by Shareholders to Buyer pursuant to Shareholders' agreements with Buyer to sell
the Shareholders' shares of Armour Independent Telephone Co. and the
Shareholders' shares of WMW Cable TV Co. (the "Maximum Amount").
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' Representative within the
later of (i) twelve (12) months after the Closing Date, or (ii) four (4) 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 or the incurring of such damages and expenses 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
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based upon an action or claim filed or made against Buyer or Union 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;
provided, however, that neither the Shareholders nor Union shall, expect with
the prior written consent of Buyer, consent to the entry of any judgment or
enter into any settlement or compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to Buyer of a
release from all liability with respect to the subject claim. With respect to
all such third party claims, Buyer shall have the right to take any actions or
steps it deems reasonable to avoid the occurrence of any prejudice to the rights
of Buyer. Buyer shall have the right to assume the defense of any such action
with counsel of Buyer's choosing, subject to Shareholders' consent, which shall
not be unreasonably withheld, at the Shareholders' sole cost, in the event such
action (i) includes a demand for injunctive or equitable relief in respect of
Buyer or Union, or (ii) is for an alleged amount of more than Fifty Thousand
Dollars ($50,000). With respect to all other claims by third parties which may
result in indemnification by the Shareholders hereunder, Buyer may participate
with counsel of its choosing at its cost.
6.3 Set Off Under Noncompetition Agreements. 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, Buyer shall have the right to set
off against any payments due from Buyer to the Shareholders under their
respective Noncompetition Agreements any amount for which Buyer is entitled to
indemnification by Shareholders under this Article 6. Any set off against such
payments shall be divided equally among payments to each of the Shareholders.
Article 7
REGULATORY APPROVALS
7.1 Regulatory Approvals. Buyer shall manage, at its expense, the process
of obtaining and shall use its best efforts to obtain in an expeditious manner,
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, the South Dakota Public Utilities Commission,
the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvement
Act ("HSR Act"), and any other local, state or federal agency or municipality.
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, and shall pay all filing fees required by the HSR Act.
Union and the Shareholders agree to cooperate with Buyer in obtaining such
consents and approvals.
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Article 8
OTHER OBLIGATIONS
8.1 Tax Return Preparation and Audit. The parties acknowledge that Union
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 and provided that Buyer shall, upon the written request of
the Shareholders' Representative, permit Union's accountant to review and
participate in preparing such tax returns. 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 Union'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 Union 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. Union and the Shareholders agree that, subject to
compliance with any fiduciary duty, and excluding the actions taken with respect
to the cellular and DBS businesses as contemplated in this Agreement, neither
they nor any of their agents or 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 Union
common 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 Union or the acquisition of Union common stock; or (iii)
make any information concerning Union or Union common stock available to any
person for the purpose of affecting or causing a disposition of Union assets or
the Union common stock.
Article 9
CONDITIONS PRECEDENT TO OBLIGATIONS
OF UNION AND THE SHAREHOLDERS
The obligations of Union 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.
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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), including without way of
limitation, all regulatory approvals contemplated by Section 7.1 hereof, 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 Union and the Shareholders, materially adversely
impact the financial condition of Union.
9.5 Payment. Buyer shall pay the Adjusted Purchase Price to all Selling
Shareholders in accordance with Article 2.
9.6 No Litigation. No claim, suit, action, or other proceeding shall be
pending before any court or governmental body to restrain or prohibit the
consummation of the transactions hereunder.
9.7 Deliveries by Buyer. On or before the Closing Date, Buyer shall have
executed and delivered to Union and the Shareholders the following:
(a) Transition Services Agreements for each Shareholder in
substantially the form attached hereto as Exhibit C; and
(b) Noncompetition Agreements for each Shareholder in substantially
the form attached hereto as Exhibit D.
9.8 Related Transactions. Union and the Shareholders shall have evidence
reasonably satisfactory to them that on or before the Closing Date the
transactions contemplated in the following agreements have been consummated or
are being consummated concurrently with closing under this Agreement: (i) Stock
Purchase Agreement, dated ______________, 1998, among Armour Independent
Telephone Co., the Shareholders and MJD Services Corp., as buyer; and (ii) Stock
Purchase Agreement, dated _____________________, 1998, among WMW Cable TV Co.,
the Shareholders and MJD Services Corp., as buyer; and (iii) the sale or
transfer of Union's Cellular Interest and DBS Interest, as contemplated in this
Agreement.
9.9 Opinion of Counsel. Buyer shall deliver at Closing an opinion of
counsel to Buyer in substantially the form attached hereto as Exhibit E.
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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 Union 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 Union as contemplated in
this Agreement); Union or Shareholders shall advise Buyer in writing of any such
resulting inaccuracies, and Union 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 Union and the Shareholders covering the provisions of
Section 10.1 hereof.
10.3 Certified Copy of Resolutions. Union shall have delivered to Buyer a
copy, certified by the duly qualified and acting secretary or assistant
secretary of Union of resolutions adopted by the board of directors and
shareholders of Union 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), including, without way of
limitation, all regulatory approvals contemplated by Section 7.1 hereof, 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 Buyer, materially adversely impact the financial
condition of Union; provided that Buyer agrees that the imposition of conditions
of sale by the South Dakota Public Utilities Commission which are similar to
those imposed in the purchase of Kadoka Telephone Co. by an affiliate of Buyer
(Notice of Entry of Order TC96-167) shall not be deemed to materially adversely
impact the financial condition of Union.
10.5 Surrender of Certificates. The Selling Shareholders shall have
surrendered to Buyer the certificates representing all of the issued and
outstanding shares of Union common stock, and such certificates shall be duly
endorsed in blank or shall have duly executed blank stock powers attached
thereto. Additionally, Union shall have caused to be delivered to Buyer the
certificates representing all of the issued and outstanding shares of capital
stock of Union TelNET, Inc. and KM Satellite, Inc.
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10.6 Resignations. Buyer shall have received from each director and
officer of Union a written resignation from all Union offices and directorships
held, respectively, effective as of the Closing Date, and shall have received
from each of the Shareholders their resignation as an employee of Union.
10.7 Deliveries by Shareholders. On or before the Closing Date,
Shareholders shall have executed and delivered to Buyer the following:
(a) Transition Services Agreements for each Shareholder in substantially
the form attached hereto as Exhibit C; and
(b) Noncompetition Agreements for each Shareholder in substantially the
form attached hereto as Exhibit D.
10.8 No Material Adverse Change. Since December 31, 1997 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 Union on a consolidated basis.
10.9 Delivery of Corporate Records. At Closing the Shareholders shall
deliver to Buyer the Union minute books and stock registers.
10.10 No Litigation. No claim, suit, action or other proceeding shall be
pending before any court or governmental body to restrain or prohibit the
consummation of the transactions contemplated hereunder.
10.11 Opinion of Counsel. The Shareholders shall deliver at Closing an
opinion of counsel to the Shareholders and Union in substantially the form
attached hereto as Exhibit F.
10.12 Related Transactions. The Buyer shall have evidence reasonably
satisfactory to it that on or before the Closing Date the transactions
contemplated in the following agreements have been consummated or are being
consummated concurrently with Closing under this Agreement: (i) Stock Purchase
Agreement, dated _____________________, 1998, among Armour Independent Telephone
Co., the Shareholders and MJD Services Corp., as buyer; and (ii) Stock Purchase
Agreement, dated _________________, 1998, among WMW Cable TV Co., the
Shareholders and MJD Services Corp., as buyer, and (iii) the sale or transfer of
Union's Cellular Interest and DBS Interest, as contemplated in this Agreement.
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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 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 the Shareholders in the event that any of the conditions set
forth in Article 9 of this Agreement shall not have been satisfied or
waived and Closing shall not have occurred on or before August 6, 1999, 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 August 6, 1999, 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 or to an
Affiliate 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
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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:
If to Buyer: If to Union or Shareholders:
MJD Services Corp. c/o David Knudson, Esq.
521 East Morehead Street, Suite 250 Davenport Law Firm
Charlotte, North Carolina 28202 P.O. Box 1030
Fax #: (704) 344-8121 513 So. Main Avenue
Attention: Eugene Johnson Sioux Falls, South Dakota 57104
Executive Vice President Fax #: (605) 335-3639
with a copy to: with a copy to:
Underwood, Kinsey, Warren & Tucker, P.A. Dennis J. Fogland 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.
33
<PAGE>
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
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 Confidential Information.
(a) The parties hereby acknowledge and agree that on and after the
date hereof, and provided that the party seeking to enforce the provisions
of this Section 12.12 is not then in default of its obligations hereunder,
each party shall hold in the strictest confidence, and shall not use or
disclose to any person, firm or corporation (other than on a need-to-know
basis), without the written authorization of the other party, any
Confidential Information in its possession pertaining to the other party,
except (i) as may be ordered by a court of competent jurisdiction of a
claim involving the subject matter of such Confidential Information, (ii)
as otherwise required by applicable law or regulation, or (iii) as
otherwise provided under Section 12.14 hereof. As used in this Agreement,
"Confidential Information" means the terms and conditions contained in
this Agreement, including the consideration payable hereunder, and all
information, documents and materials not generally available to the public
which have been provided by one party to the other in connection with the
transactions contemplated hereby or which otherwise relate to, this
Agreement. Union and Buyer each acknowledge and agree that any breach of
this section would cause the other party irreparable harm. Accordingly,
the non-breaching party may seek and obtain injunctive relief against the
breach or threatened breach of this Section 12.12, in addition to any
other remedies to which
34
<PAGE>
such party may be entitled at law or in equity. If the transactions
contemplated by this Agreement shall not be consummated, such confidence
shall be maintained and such information shall not be used in competition
with Union or the Buyer.
(b) Notwithstanding anything in this Agreement to the contrary, the
parties shall not be under any obligation to maintain in confidence any
portion of the information it has received in connection with the
transactions contemplated hereby which (i) is now, or which hereafter,
through no act or failure to act on the part of either party, becomes
generally known or available to the public, (ii) is known by the recipient
party at the time of the disclosure of such information, (iii) is
furnished to the other without restriction on disclosure, or (iv) is
hereafter furnished to a party by a third party, as a matter of right and
without restriction of disclosure.
(c) Notwithstanding the foregoing, any party hereto may disclose the
nature and terms of this Agreement to any third party without the prior
written consent of any other party or parties hereto (i) as required to
obtain the consents, waivers and authorizations referenced in Sections
3.3, 4.3, 4.12, 7.1, 9.4 and 10.4 hereof, (ii) in connection with the
Buyer's financing of the transactions contemplated hereby, (iii) as
required by applicable law, and (iv) in connection with any securities law
filing.
12.13 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.
12.14 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 SERVICES CORP.,
a Delaware corporation
By: /s/ Michael J. Stein
-----------------------
Title: Vice Presidnet
35
<PAGE>
UNION TELEPHONE COMPANY OF
HARTFORD, a South Dakota corporation
By: /s/ William G. Haugen
-----------------------
Title: President
/s/ William G. Haugen, Sr.
----------------------------
WILLIAM G. HAUGEN, SR.
/s/ Marilyn M. Haugen
----------------------
MARILYN M. HAUGEN
/s/ William G. Haugen, Jr.
----------------------------
WILLIAM G. HAUGEN, JR.
UNION TELNET, INC.,
a South Dakota corporation
By: /s/ William G. Haugen, Jr.
----------------------------
Title: President
KM SATELLITE, INC.
By: /s/ William G. Haugen, Jr.
----------------------------
Title: President
36
<PAGE>
EXHIBIT A
UNION TELEPHONE COMPANY
===============================================================================
NUMBER OF PERCENTAGE OF OUTSTANDING
SHAREHOLDER SHARES OWNED COMMON STOCK
- -------------------------------------------------------------------------------
William G. Haugen, Sr. 44 25.3%
- -------------------------------------------------------------------------------
Marilyn M. Haugen 45 25.9%
- -------------------------------------------------------------------------------
William G. Haugen, Jr. 73* 42.0%
- -------------------------------------------------------------------------------
Eugene Benson,
Hartford, South Dakota 1 0.6%
- -------------------------------------------------------------------------------
Arvid Jordan, Hartford,
South Dakota 1 0.6%
- -------------------------------------------------------------------------------
Ernest Kroeger,
Hartford, South Dakota 1 0.6%
- -------------------------------------------------------------------------------
Minnehaha Coop Oil,
Sioux Falls, South
Dakota 1 0.6%
- -------------------------------------------------------------------------------
Estate of George
Mueller, Humboldt,
South Dakota 1 0.6%
- -------------------------------------------------------------------------------
Arleen B. Oakleaf,
Hartford, South Dakota 1 0.6%
- -------------------------------------------------------------------------------
Hazel Ollig, Phoenix,
Arizona 1 0.6%
- -------------------------------------------------------------------------------
Leo Scherer, Harford,
South Dakota 1 0.6%
- -------------------------------------------------------------------------------
Estate of Charles
Perrett, Sioux Falls,
South Dakota 1 0.6%
- -------------------------------------------------------------------------------
David Lee Theel, Sioux
Falls, South Dakota 1 0.6%
- -------------------------------------------------------------------------------
Trinity Lutheran
Church, Hartford, South
Dakota 1 0.6%
- -------------------------------------------------------------------------------
Zion Evangelical
Lutheran Church,
Hartford, South Dakota 1 0.6%
- -------------------------------------------------------------------------------
TOTAL 174 100%
===============================================================================
37
<PAGE>
*Includes one share each held by Mildred Armentrout and JoAnn Harden as
directors' qualifying shares.
38
<PAGE>
EXHIBIT B
EXCLUDED ASSETS
(1) Vehicles: 1996 Dodge Dakota SLT (William G. Haugen, Sr. personal vehicle).
Early 1950's Ford tractor
(2) Office Equipment:
(a) Apple MacIntosh Power Book 160 PC (William G. Haugen, Jr.)
(b) Apple StyleWriter II Printer (William G. Haugen, Jr.)
(c) Dell Dimension XPS D300 PC (William G. Haugen, Jr.)
(d) Cannon FaxPhone B640 (William G. Haugen, Jr.)
(3) Office Furniture:
(a) Desk, chair, two guest chairs (William G. Haugen, Sr.)
(b) Desk, chair (Marilyn M. Haugen)
(c) Desk, Credenza, two drawer file set, chair, two guest chairs
(William G. Haugen, Jr.)
(d) Seven foot folding table (William G. Haugen, Jr.)
(4) Storage
(a) Three drawer file (William G. Haugen, Sr.)
(b) Four drawer file (Marilyn M. Haugen)
(c) Four drawer file (William G. Haugen, Jr.)
(d) Two drawer fire resistant file (William G. Haugen, Jr.)
(e) Two drawer metal cabinet (William G. Haugen, Jr.)
(5) Miscellaneous:
(a) Various pictures and plaques located at the Company office
(6) All assets related to the Company's cellular telephone and direct
broadcast satellite businesses (being sold to third parties).
Note: The Haugens have within the last several months, transferred five vehicles
not used in the operation of the business (28 years or older) with a
collector value only, a 1991 Buick Roadmaster and a 1995 Chevy Blazer LT.
The Blazer and Roadmaster are used as personal vehicles by the Haugens.
39
<PAGE>
Exhibit 2.13
STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBITS
Exhibit A.................................................List of Shareholders
Exhibit B.....................................Form of Noncompetition Agreement
Exhibit C...........................................Opinion of Buyer's Counsel
Exhibit D...........................Opinion of Shareholders' and WMW's Counsel
<PAGE>
SCHEDULES
Schedule 4.6..........................................WMW 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 or Leased
Schedule 4.22............................................Environmental Matters
Schedule 4.23...........................................Affiliate Transactions
Schedule 4.25..............................................Permits and Reports
Schedule 4.26......................................................Liabilities
Schedule 5.0 .....................................Exceptions to Covenants
<PAGE>
This Stock Purchase Agreement (the "Agreement") is made as of December 24,
1998, among MJD Services Corp., a Delaware corporation (the "Buyer"); WMW Cable
TV Co., a South Dakota corporation ("WMW"); and William G. Haugen, Sr. and
Marilyn M. Haugen, individuals and the holders of all of the outstanding stock
of WMW (jointly, the "Shareholders"); and William G. Haugen, Jr., Vice President
of WMW.
WHEREAS, the Shareholders own 100 percent of the issued and outstanding
shares of the common stock of WMW (the "WMW Stock"), with the number of shares
and percentages set forth on Exhibit A hereto; and
WHEREAS, Buyer desires to purchase the WMW Stock from the Shareholders,
and the Shareholders desire to sell the WMW 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 WMW Stock from the Shareholders, and the Shareholders shall sell the WMW
Stock to Buyer. The conveyance of the WMW Stock shall be made by the
Shareholders to Buyer free and clear of all options, liens, claims, restrictions
and encumbrances of any nature whatsoever (collectively, "Liens").
1.2 Closing. The consummation of the transactions contemplated herein (the
"Closing") shall take place at the offices of Union Telephone Company, 116 North
Main Avenue, Hartford, South Dakota, at 1 0:00 a.m. local time, on the first
business day as the closing shall occur under the Stock Purchase Agreement,
among Union Telephone Company, the Shareholders and MJD Services Corp., and
Stock Purchase Agreement among, Armour Independent Telephone Co. and MJD
Services Corp., or at such other time and place as Buyer and the Shareholders
may mutually agree (the "Closing Date").
1.3 Shareholders' Representative. William G. Haugen, Jr. shall be the
"Shareholders' Representative" or, in the event of his death or inability to so
act, William G. Haugen, Sr. shall be the Shareholders' Representative. The
Shareholders, by execution of this Agreement, authorize the Shareholders'
Representative to take such action on their behalf as the Shareholders'
Representative is herein authorized t o take or as such Shareholders'
Representative may deem necessary or advisable in order to carry out the
purposes and intents of this Agreement.
4
<PAGE>
Article 2
PURCHASE PRICE
2.1 Purchase Price. (a) Buyer shall purchase the WMW Stock from the
Shareholders for an aggregate purchase price of $700,000 (the "Base Purchase
Price"), plus the "Increase in Stockholders' Equity" as defined in accordance
with Section 2.1 (b) below, which amount shall be payable in accordance with
this Article 2.
(b) The Base Purchase Price shall be adjusted by adding to, or
subtracting from, it the "Change in Stockholders' Equity", determined as
follows:
(i) Buyer and the Shareholders acknowledge that as of December
31, 1 997, WMW's balance sheet reflected total stockholders' equity
of $46,798. The "Change in Stockholders' Equity" shall be determined
by: Subtracting the total Stockholders' Equity as of December 31, 1
997 ($46,978) from the Total Stockholders' Equity of WMW as of the
Closing Date (which, in the event of a decrease in Stockholders'
Equity, shall result in a negative number).
(ii) The sum of the Base Purchase Price and the Change in
Stockholders' Equity as determined above, shall be referred to
herein as the Adjusted Purchase Price. The Adjusted Purchase Price
shall be based on an estimated closing balance sheet of WMW prepared
in good faith by the WMW accountants/consultants, subject to Buyer's
review and approval thereof, which shall not be unreasonably
withheld.
2.2 Closing Date Payment and Receipt of Shares. On the Closing Date, (i)
the S-shareholders will assign and transfer to Buyer good and valid title in and
to the WMW Stock, free and clear of all Liens, by delivering to Buyer stock
certificates representing the WMW 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 the Adjusted Purchase Price, as determined in accordance with Section
2.1 above; (the "Closing Payment"); and (iii) the parties shall deliver to each
other the documents required under this Agreement to be delivered at or prior to
the Closing.
2.3 Post-Closing Adjustments to the Purchase Price. The Closing Payment
payable by Buyer to the Shareholders on the Closing Date pursuant to Section 2.2
hereof may be adjusted as follows. Within ninety (90) days after the Closing
Date, Buyer and the Shareholders shall prepare a closing balance sheet for WMW
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 WMW's past practices. The
amount of the Adjusted Purchase Price shall be increased or decreased, as the
case may be, by the difference, if any, between the Adjusted Purchase Price
determined in good faith as of the Closing Date and the Adjusted Purchase Price
as such is determined based on the Closing Balance Sheet. If, as a result of the
foregoing adjustment, the Adjusted 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.
5
<PAGE>
Article 3
REPRESENTATIONS AND WARRANTIES OF BUYER
For the purpose of inducing WMW 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 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, 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 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 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, all as more
particularly provided in Section 7.1 hereof.
3.4 Access to Books and Records. Buyer has carefully reviewed this
Agreement and in deciding to purchase the WMW Stock has reviewed, and is
continuing to review information set forth in the books and records of WMW.
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, and continues to
have, a reasonable opportunity to ask questions of and receive answers from the
Shareholders and WMW concerning all aspects of the business of WMW, 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 WMW Stock and to
make an informed investment decision with respect thereto.
6
<PAGE>
3.5 Investment Intent. Buyer is acquiring the WMW 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 WMW
AND THE SHAREHOLDERS
For the purpose of inducing Buyer to enter into this Agreement, WMW,
the Shareholders and William G. Haugen, Jr. jointly and severally, hereby
make the following representations and warranties (for purposes of this
Article 4, all references to "Shareholders" shall be deemed to include in all
respects, William G. Haugen, Jr.):
4.1 Organization and Qualification of WMW. WMW 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 4-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. WMW has delivered to Buyer a true and
correct copy of the Articles of Incorporation of WMW, 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 WMW, as currently in effect, as
certified by the Secretary of WMW.
4.3 Regulatory Approvals. At Closing, WMW shall have given all notices to
and have obtained from all local, state and federal regulatory authorities any
approvals, consents, permits and authorizations required in order to consummate
the transactions contemplated in accordance with this Agreement, all as more
particularly provided in Section 7.1 hereof.
4.4 Authorization of Agreement. The execution and delivery of this
Agreement has been duly authorized and approved by WMW's board of directors and
the Shareholders. This Agreement is a valid and binding obligation of WMW 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
WMW and/or the Shareholders have been duly authorized to do so by all necessary
action of WMW and its Shareholders.
7
<PAGE>
4.5 Capital Stock of WMW.
(a) The authorized capital stock of WMW consists of 10,000 shares of $10
par value common stock. The Shareholders are the beneficial owners of 100
percent of WMW's common stock. All of the issued and outstanding shares of the
WMW 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 WMW Stock, as provided in Section
10.5 of this Agreement, will pass good and marketable title to the WMW Stock to
Buyer free and clear of all Liens. There are no outstanding warrants, options,
rights, calls or other commitments of any nature ..relating to the WMW Stock,
and there are no outstanding securities or debt obligations of WMW convertible
into shares of capital stock of WMW. None of the issued and outstanding shares
of capital stock of WMW was issued in violation of preemptive rights.
4.6 Financial Statements of WMW. WMW has delivered to Buyer copies of the
unaudited financial statements of WMW for the years ended December 31, 1997 and
1 996 (the "WMW 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 WMW
Financial Statements are contained in Schedule 4.6. The WMW Financial Statements
were prepared in accordance with a cash basis of accounting applied on a
consistent,basis and fairly present the financial condition of WMW as of their
respective dates and the results of operations of WMW for the periods ended
December 31, 1997, and December 31, 1996, respectively. WMW will supply to Buyer
any and all interim financial statements of WMW as shall be available,
including, without limitation, those for the 12-month period ending December 31,
1998 (the "Interim Financial Statements"). The Interim Financial Statements
shall be prepared in accordance with a cash basis of accounting applied on a
consistent basis, subject to customary year-end adjustments, and shall present
fairly the financial condition of WMW for the period(s) covered thereby.
4.7 Absence of Material Changes. Since December 31, 1997, except as
disclosed on Schedule 4.7, WMW 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 WMW 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 WMW;
(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 WMW;
8
<PAGE>
(c) Any issuance or sale or agreement to issue or sell any
stock, bonds, notes or other corporate securities or long-term debt
of WMW;
(d) Any granting of options, warrants or other rights calling for
the issuance of stock or other corporate securities of WMW;
(e) Any merger or consolidation involving WMW 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 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 WMW;
(g) Any material transaction entered into by WMW other than in the
ordinary course of business or any transaction or series of related
transactions in the ordinary course of business (including a capital
expenditure) in excess of $25,000;
(h) Any material change in the accounting methods or practices of
WMW or any material change in depreciation or amortization or rates
theretofore adopted by WMW, except for those changes affecting the cable
television industry generally;
(i) Any payment of a dividend or payment in the form of a
distribution to the Shareholders or any member of their family; or
(j) Any agreement or commitment by WMW (or any understanding between
WMW 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 WMW is accurately reflected
on the WMW Financial Statements, except for: (i) accounts payable incurred in
the ordinary course of business since December 31, 1997, and (ii) changes
reflecting payments made by WMW of its long-term indebtedness, all of which
shall be accurately reflected on the Interim Financial Statements. WMW 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 WMW or against the WMW Stock or the
Shareholders or consent decrees or injunctions to which WMW or the WMW Stock or
the Shareholders are subject, and there is no litigation, claim or proceeding
pending, or to the know-ledge of the Shareholders or WMW threatened, against or
relating to WMW or against the WMW Stock or the Shareholders or the properties
or businesses of WMW, nor do WMW or the Shareholders know or have reasonable
grounds to know of any basis for any such action or of any governmental
investigation relating to WMW or the properties or operations of WMW.
9
<PAGE>
4.10 Compliance With Laws. WMW 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 WMW nor the Shareholders have received
any notice or warning from any governmental authority with respect to any
failure or alleged failure of WMW or its Shareholders to comply with any
applicable law, regulation or order and, to the best knowledge of WMW and the
Shareholders, no such notice or warning has been proposed or threatened.
4.11 Benefit Plans. All employee benefit plans to which WMW pays benefits
or premiums on behalf of its employees are listed on Schedule 4.11 (the
"Plans"). Except as disclosed on Schedule 4.11, WMW 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 WMW paying or obligated to pay any bonus, deferred
compensation, pension, profit sharing, severance, retirement allowance or other
fringe benefit to any party whatsoever. 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
WMW.
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 WMW or any
instrument or agreement to which WMW or the Shareholders are a party or are
bound which would have a material adverse effect on WMW's properties or
operations; (ii) violate any judgment, order, injunction, decree or award
against or binding upon WMW or upon the WMW Stock or other securities, property
or business of WMW which would have a material adverse effect on WMW's
properties or operations; (iii) result in the creation of any material lien;
charge or encumbrance upon the properties or assets of WMW or the WMW Stock; or
(v) violate any law or regulation of any jurisdiction relating to WMW or the WMW
Stock or other securities, property or business of WMW 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 WMW 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 WMW 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 WMW, and all issuances, redemptions, transfers and cancellations of
capital stock. True and correct copies of the foregoing have been made available
to Buyer.
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4.14 Subsidiaries and Investments. Except as disclosed on Schedule 4.14,
WMW 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.
4.15 Insurance. Attached hereto as Schedule 4.15 is a complete list of all
insurance policies currently maintained by WMW, 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 WMW 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
WMW 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. Schedule 4.16 sets forth the policies
followed by WMW with respect to vacation and sick-leave for employees of
WMW. WMW has paid or made provision for the payment of all salaries and
accrued wages, 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) Employment Agreement. Except as set forth on Schedule 4.16
hereto, WMW is not a party to any (i) outstanding employment agreements
nor 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, nonexempt or hourly employees, (iii) collective bargaining
agreement or other labor union contract applicable to persons employed by
WMW nor do Shareholders or WMW know of any activities or proceedings of
any labor union to organize any such employees. WMW has furnished to Buyer
complete and correct copies of all such agreements, if any ("Employment
and Labor Agreements"). WMW has not breached or otherwise failed to comply
with any provisions of any Employment and Labor Agreement.
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(d) Employment Claims. There are no charges with respect to or
relating to WMW pending before the Equal Employment Opportunity Commission
or any state, or local agency responsible for the prevention of unlawful
employment practices, and WMW 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 WMW and, to
the knowledge of Shareholders and WMW, no such investigation is in
progress or threatened.
4.17 Contracts.
(a) Generally. Except as listed in Schedule 4.1 7, WMW 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;
(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
WMW;
(vi) A guarantee of any obligation;
(vii) The lease (whether as lessee or lessor) or operation of
any leased property, real or personal requiring total annual
payments in excess of $25,000;
(viii) Intangible property (including proprietary rights),
requiring total annual payments in excess of $25,000;
(ix) Express warranties given by WMW with respect to its
services rendered or its products sold or leased;
(x) Registration or preemptive rights with respect to any
securities;
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(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 $25,000;
(xiii) Employees, independent contractors, consultants, or
other agents;
(xiv) Sales, commissions, advertising or marketing; or
(xv) Any other written contract not of the type covered by any
-of the foregoing items of this Section 4.1 7 requiring total annual
payments by WMW in excess of $25,000.
(b) Compliance. WMW 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 and WMW's knowledge, 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 Shareholders or WMW under
any contract required to be disclosed on Schedule 4.17. Except as
disclosed in Schedule 4.17, neither the Shareholders nor WMW has any
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
all real property and a list of personal property owned and used by WMW in
the operation of its business and a list of real and personal property to
be excluded from the transactions contemplated by this Agreement. WMW has
good and merchantable 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 W
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
specifically disclosed in the footnotes to the WMW Financial Statements.
All properties used in WMW's business operations as of December 31, 1997
are reflected in the WMW Financial Statements in accordance with and to
the extent required by GAAP. WMW has delivered, with respect to any real
property owned by WMW, 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.
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(b) Leases. Except as set forth on Schedule 4.19, WMW is not a
lessee under any lease for personal or real property.
(c) Liens. The real property owned by WMW and the buildings,
-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. WMW'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 WMW'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 WMW's owned real
property.
(d) Utilities. Except as set forth on Schedule 4.19, the real
property owned by WMW has access, sufficient for the conduct of its
business as presently conducted, to public roads and to all utilities,
including electricity, sanitary and storm sewer, potable water and other
utilities used in the operation of its business as presently conducted.
(e) Condition. Since December 31, 1997, WMW 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) transactions otherwise consented to in writing by Buyer,
or (iii) transactions disclosed on Schedule 4.19. WMW owns, leases, 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 WMW 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, and constitute all of the assets necessary for Buyer to
conduct the business of WMW as presently conducted.
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4.20 Tax Matters.
(a) Generally. WMW 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 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 WMW Financial Statements and on the Closing Balance Sheet
and on the books and records of WMW in accordance with GAAP. All Taxes
which are required to be withheld or collected by WMW 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 WMW, except for liens for Taxes not
yet due and payable. Except as set forth on Schedule 4.20, WMW 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
WMW, including those set forth on the WMW Financial Statements, have been
properly received by WMW 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' and WMW's
knowledge are correct and complete in all material respects, and to the
best of the Shareholders' and WMW's 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' and WMW's 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 WMW have
delivered to Buyer true and complete copies of all Tax Returns filed by
WMW with respect to its 1994, 1995, 1996 and 1997 fiscal years.
4.21 Intellectual Property. WMW does not own and has not applied for any
registered patents, copyrights, trademarks or service marks. If necessary, WMW
holds valid licenses to use all proprietary rights used in the operation of its
business as presently conducted.
4.22 Environmental Matters. WMW has obtained all environmental permits
required in connection with the operation of its business. WMW 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. WMW 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 WMW 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 WMW's knowledge, threatened by any
authority or other entity with respect to WMW relating to any
environmental permit, license or authorization required in connection with
the conduct of business of WMW 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' and WMW's knowledge, in
connection with the real property owned or leased by WMW, except as set
forth in Schedule 4.22:
(i) WMW has not handled any Hazardous Material on any property
now or previously owned or leased by WMW.
(ii) No PCB or asbestos is or has been present at any property now
or previously owned or leased by WMW.
(iii) There are no underground storage tanks for Hazardous
Materials, active or abandoned, at any property now or previously
owned and leased by WMW.
(iv) There has been no release of Hazardous Materials at, or under
any property now or previously owned or leased by WMW.
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(c) Transportation. WMW has not W 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" (as defined in Section 9601(22) of Title 42 of the United States
Code) of a Hazardous Material has been filed by or on behalf of WMW and no
property now or previously owned or leased by WMW 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 WMW,
and no government actions have been taken or are threatened which could
subject any of such properties to such Liens. WMW 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 4.22, there
have been no Phase I or Phase II environmental site assessments conducted
by or which are in the possession of the Shareholders or WMW in relation
to any property or facility now or previously owned or leased by WMW.
4.23 Dealings with Affiliates. Schedule 4.23 sets forth a complete and
accurate list of all written contracts between WMW and any one or more of its
Affiliates. For purposes of this Agreement, "Affiliate" shall mean, with regard
to any person or entity, any person or entity which, directly or indirectly,
controls, is controlled by, or is under common control with, such person or
entity and, with respect- to any 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 or entity, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such person or entity, whether through the ownership of voting
securities, by contract or otherwise. Except as set forth in Schedule 4.23,
since December 31, 1997, WMW 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.
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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, WMW 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 ("Permits") issued to or held
by WMW in connection with its operations. Such Permits are the only Permits that
are required for WMW to conduct its business as presently conducted. Each such
Permit is in full force and effect, and neither the Shareholders nor WMW has
received notice that any suspension, cancellation or modification of the terms
of any such Permit is threatened. WMW is in full compliance in all material
respects with the terms of each such Permit, and the Shareholders and WMW 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' and WMW's knowledge, (i) all returns, reports, applications-,
statements and other documents required to be filed by WMW with any 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, (ii) all reporting requirements of regulatory or governmental
authorities or municipalities (including taxing authorities) having jurisdiction
thereof have been complied with in all material respects; and (iii) no other
person or entity is currently operating or providing television service within
the boundaries served as of the date hereof by WMW, and to the best of the
Shareholders' and WMW's knowledge, no other person or entity is anticipating or
contemplating doing so.
4.26 Absence of Undisclosed Liabilities. WMW 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 WMW
Financial Statements, (ii) current liabilities incurred in the ordinary course
of business and consistent with past practice after the date of the WMW
Financial Statements which, individually and in the aggregate, do not have, and
cannot reasonably be expected to have, a material adverse effect,and which shall
be fully set forth in the Interim Financial Statements with respect to the
periods covered thereby, 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 WMW
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.
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Article 5
COVENANTS AND AGREEMENTS OF WMW AND SHAREHOLDERS
WMW, the Shareholders and William G. Haugen, Jr., jointly and severally,
covenant and agree with Buyer as follows, that from the date of this Agreement
through the Closing Date, 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 WMW or in the authorized or
issued capital stock of WMW, and WMW 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. WMW 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 WMW.
5.3 Conduct of Business. Except with the prior written approval of
Buyer or as shown on Schedule 5.0 hereto:
(a) The business of WMW shall be conducted in the same manner as
presently being conducted and WMW 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 (which changes shall be specifically described on
Schedule 5.0 hereto);
(b) No written employment agreement or commitment to employees
(including any commitment to pay retirement, severance or other benefits)
shall be entered into by WMW;
(c) No increase shall be made in the compensation or compensation
plans (including bonuses, commissions, severance pay and fringe benefits)
payable or to become payable to any officer, director or employee of WMW,
except for those routine salary increases granted to employees in the
ordinary course of business and consistent with the prior practices of
WMW, and provided with respect to this Section 5.3(c), the approval of
Buyer shall not be unreasonably withheld;
(d) WMW 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; 00 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
WMW;
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(e) WMW 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; and
(f) WMW 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 $25,000.
5.4 Access to Properties. At all times prior to the Closing Date, WMW
shall allow Buyer's employees, attorneys, accountants, agents and other
authorized and designated representatives full access during reasonable business
hours and after reasonable notice to WMW's properties, books and records,
including, without limitation, deeds, title commitments, leases, 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 WMW. In order to maintain confidentiality, Buyer may
have access to WMW's offices and properties only upon the prior approval of
William G. Haugen, Jr., Vice President of WMW.
5.5 Directors, Officers, Operations. WMW shall deliver to Buyer
prior to Closing a list showing:
(a) The names of the WMW directors and officers, registered agent
and registered office;
(b) The banks and financial institution in which WMW 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 WMW
with copies thereof attached thereto.
5.6 Cable Television Service. Buyer agrees that after the Closing Date,
WMW shall provide cable television full package service without charge to each
of the Shareholders and William G. Haugen, Jr., for so long as such person
maintains a residence within WMW's existing service area and for so long as WMW
is a provider of cable television service.
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Article 6
INDEMNIFICATION OBLIGATIONS
6.1 Matters Covered by Indemnification. The Shareholders and William
G. Haugen, Jr., 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 WMW, the Shareholders or William G.
Haugen, Jr. made in this Agreement;
(b) All Taxes of the Shareholders, William G. Haugen, Jr. or of WMW
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 WMW Financial
Statements or Closing Balance Sheet;
(c) Any undisclosed liability of WMW;
(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 $25,000 (the "Minimum Amount"), and
only with respect to such amount in excess thereof. For purposes of determining
the Minimum Amount, such amount shall include the losses, liabilities, claims,
costs, damages, expenses or deficiencies arising under the agreements of
Shareholders and William G. Haugen, Jr. with Buyer to sell their shares of Union
Telephone Company and shares of Armour Independent Telephone Co., as well as
this transaction. If such claims exceed the Minimum Amount, the Shareholders and
William G. Haugen, Jr. shall indemnify Buyer for the excess amount of the claims
pursuant to this or section; provided, however, that the Shareholders' and
William G. Haugen's total obligations to indemnify Buyer pursuant to this
Article 6 shall not exceed the lesser of: (i) $600,000, or (ii) $600,000 minus
any indemnification payments (including payment by set off) made by Shareholders
and William G. Haugen, Jr. to Buyer pursuant to Shareholders and William G.
Haugen's agreements with Buyer to sell their shares of Union Telephone Company
and shares of Armour Independent Telephone Co. (the "Maximum Amount").
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 and William G. Haugen within
the later of (i) twelve (12) months after the Closing Date, or (ii) four (4)
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 and William G. Haugen, Jr. 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
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Buyer or WMW by a third party, then the Shareholders and William G. Haugen, Jr.
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 and William G. Haugen, Jr.;
provided, however, that neither the Shareholders, William G. Haugen, Jr., nor
WMW shall, except with the prior written consent of Buyer, consent to the entry
of any judgment or enter into any settlement or compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to Buyer of a release from all liability with respect to the subject claim. With
respect to all such third party claims, Buyers shall have the right to take any
actions or steps it deems reasonable to avoid the occurrence of any prejudice to
the rights of Buyer. Buyer shall have the right to assume the defense of any
such action with counsel of Buyer's choosing, subject to Shareholders' and
William G. Haugen, Jr.'s consent, which shall not be unreasonably withheld, at
the Shareholders' and William G. Haugen, Jr.'s sole cost, in the event such
action (i) includes a demand for injunctive or equitable relief in respect of
Buyer or WMW, or (ii) is for an alleged amount of more than Fifty Thousand
Dollars ($50,000). With respect to all other claims by third parties which may
result in indemnification by the Shareholders and William G. Haugen, Jr.
hereunder, Buyer may participate with counsel of its choosing at its cost.
6.3 Set Off Under Noncompetition Agreements. From and after the date of
this Aqreement 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, Buyer shall have the right to set
off against any payments due from Buyer to the Shareholders and William G.
Haugen, Jr. under their respective Noncompetition Agreements any amount for
which Buyer is entitled to indemnification by Shareholders and William G.
Haugen, Jr. under this Article 6. Any set off against such payments shall be
divided equally among payments to each of the Shareholders and William G.
Haugen, Jr.
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 Trade Commission under the
Hart-Scott-Rodino Antitrust Improvement Act. 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. WMW and the
Shareholders agree to cooperate with Buyer in obtaining such consents and
approvals.
22
<PAGE>
Article 8
OTHER OBLIGATIONS
8.1 Tax Return Preparation and Audit. The parties acknowledge that WMW
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 and provided, that Buyer shall, upon the written
request of the Shareholders' Representative, permit WMW's accountant to review
and participate in preparing such -tax returns. 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 WMW'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. The Shareholders agree to cooperate with
the Buyer in the preparation of such tax return.
8.2 No Shopping. WMW and the Shareholders agree that, subject to
compliance with any fiduciary duty, neither they nor any of their agents or
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 WMW 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 WMW or the
acquisition of the WMW Stock; or (iii) make any information concerning WMW or
the WMW Stock available to any person for the purpose of affecting or causing a
disposition of WMW assets or the WMW Stock.
Article 9
CONDITIONS PRECEDENT TO OBLIGATIONS
OF WMW AND THE SHAREHOLDERS
The obligations of WMW, and the Shareholders and William G. Haugen, Jr.
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.
23
<PAGE>
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), including without way of
limitation, all regulatory approvals contemplated by,Section 7.1 hereof, 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 WMW and the Shareholders, materially adversely impact
the financial condition of WMW.
9.5 Payment. Buyer shall pay the Purchase Price in accordance with Article
2.
9.6 No Litigation. No claim, suit, action, or other proceeding shall be
pending before any court or governmental body to restrain or prohibit the
consummation of the transactions hereunder.
9.7 Deliveries by Buyer. On or before the Closing Date, Buyer shall have
executed and delivered to WMW, William G. Haugen, Jr. and the Shareholders
Noncompetition Agreements for each Shareholder and William G. Haugen, Jr. in
substantially the form attached hereto as Exhibit B.
9.8 Related Transactions. WMW and the Shareholders shall have evidence
reasonably satisfactory to them that on or before the Closing Date the
transactions contemplated in the following agreements have been consummated or
are being consummated concurrently with closing under this Agreement: (i) Stock
Purchase Agreement, dated __________________, 1998, among Union Telephone
Company, the Shareholders and MJD Services Corp., as buyer; and (ii) Stock
Purchase Agreement, dated , 1998, among Armour Independent Telephone Co., the
Shareholders and MJD Services Corp., as buyer.
9.9 Opinion of 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 WMW, the Shareholders and William G. Haugen, Jr. 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
WMW as contemplated in this Agreement); WMW, the Shareholders and William G.
Haugen, Jr. shall advise Buyer in writing of any such resulting inaccuracies,
and WMW, the Shareholders and William G. Haugen, Jr. 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.
24
<PAGE>
10.2 Certificate. Buyer shall have received a certificate, dated the
Closing Date, signed by WMW, the Shareholders and William G. Haugen, Jr.
covering the provisions of Section 1 0. 1 hereof.
10.3 Certified Copy of Resolutions. WMW shall have delivered to Buyer a
copy, certified by the duly qualified and acting secretary or assistant
secretary of WMW of resolutions adopted by the board of directors of WMW
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), including without way of
limitation, all regulatory approvals contemplated by Section 7.1 hereof, 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 Buyer, materially adversely impact the financial
condition of WMW.
10.5 Surrender of Certificates Representing WMW Stock. The Shareholders
shall have surrendered to Buyer the certificates representing all of the issued
and outstanding shares of WMW 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 WMW a written resignation from all WMW offices and directorships
held, respectively, effective as of the Closing Date, and shall have received
from each of the Shareholders and William G. Haugen, Jr. their resignation as
an employee of WMW.
10.7 Deliveries by Shareholders. On or before the Closing Date,
Shareholders and William G. Haugen, Jr. shall have executed and delivered to
Buyer Noncompetition Agreements for each Shareholder and William G. Haugen, Jr.
in substantially the form attached hereto as Exhibit B.
10.8 No Material Adverse Change. Since December 31, 1997 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 WMW.
25
<PAGE>
10.9 Delivery of Corporate Records. At Closing the Shareholders shall
deliver to Buyer the WMW minute books and stock registers.
10.10 No Litigation. No claim, suit, action or other proceeding shall be
pending before any court or governmental body to restrain or prohibit the
consummation of the transactions contemplated hereunder.
10.11 Opinion of Counsel. The Shareholders shall deliver at Closing an
opinion of counsel to the Shareholders and WMW in substantially the form
attached hereto as Exhibit D.
10.12 Related Transactions. The Buyer shall have evidence reasonably
satisfactory to it that on or before the Closing Date the transactions
contemplated in the following agreements have been consummated or are being
consummated concurrently with Closing under this Agreement: (i) Stock Purchase
Agreement, dated ______________, 1998, among Union Telephone Company, the
Shareholders and MJD Services Corp., as buyer; and (ii) Stock Purchase
Agreement, dated ___________________. 1998, among Armour Independent Telephone
Co., the Shareholders and MJD Services Corp., as buyer.
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
and William G. Haugen, Jr.; or
(b) By 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 the Shareholders in the event that any of the conditions set
forth in Article 9 of this Agreement shall not have been satisfied or
waived and Closing shall not have occurred on or before August 6, 1999, 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 August 6, 1999, 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.
26
<PAGE>
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 or to an
Affiliate 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:
If to WMW Shareholders
If to Buyer: or William G. Haugen, Jr.
MJD Services Corp. c/o David Knudson, Esq.
521 East Morehead Street, Suite 250 Davenport Law Firm
Charlotte, North Carolina 28202 P.O. Box 1030
Fax #: (704) 344-8121 513 So. Main Avenue
Attention: Eugene Johnson Sioux Falls, South Dakota 57104
Fax #: (605) 335-3639
with a copy to: with a copy to:
Underwood, Kinsey, Warren & Tucker, P.A. Dennis J. Fogland 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
1 2.4 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.
27
<PAGE>
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
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 Confidential Information.
(a) The parties hereby acknowledge and agree that on and after the
date hereof, and provided that the party seeking to enforce the provisions
of this Section 12.12 is not then in default of its obligations hereunder,
each party shall hold in the strictest confidence, and shall not use or
disclose to any person, firm or corporation (other than on a need-to-know
basis), without the written authorization of the other party, any
Confidential Information in its possession pertaining to the other party,
except (i) as may be ordered by a court of competent jurisdiction of a
claim involving the subject matter of such Confidential Information, (ii)
as otherwise required by applicable law or regulation, or (iii) as
otherwise provided under Section 12.14 hereof. As used in this Agreement,
"Confidential Information" means the terms and conditions contained in
this Agreement, including the consideration payable hereunder, and a-II
information, documents and materials not generally available to the public
which have been provided by one party to the other in connection with the
transactions contemplated hereby or which otherwise relate to, this
Agreement. WMW and Buyer each acknowledge and agree that any breach of
this section would cause the other party irreparable harm. Accordingly,
the non-breaching party may seek and obtain injunctive relief against the
breach or threatened breach of this Section 12.12, in addition to any
other remedies to which such party may be entitled at law or in equity. If
the transactions contemplated by this Agreement shall not be consummated,
such confidence shall be maintained and such information shall not be used
in competition with WMW or the Buyer.
28
<PAGE>
(b) Notwithstanding anything in this Agreement to the contrary, the
parties shall not be under any obligation to maintain in confidence any
portion of the information it has received in connection with the
transactions contemplated hereby which (i) is now, or which hereafter,
through no act or failure to act on the part of either party, becomes
generally known or available to the public, (ii) is known by the recipient
party at the time of the disclosure of such information, (iii) is
furnished to the other without restriction on disclosure, or (iv) is
hereafter furnished to a party by a third party, as a matter of right and
without restriction of disclosure.
(c) Notwithstanding the foregoing, any party hereto may disclose the
nature and terms of this Agreement to any third party without the prior
written consent of any other party or parties hereto (i) as required to
obtain the consents, waivers and authorizations referenced in Section 3.3,
4.3, 4.12, 7.1, 9.4 and 1 0.4 hereof, (ii) in connection with the Buyer's
financing of the transactions contemplated hereby, (iii) as required by
applicable law, and (iv) in connection with any securities law filing.
12.13 Further Actions. Following the Closing Date, at the request of
Buyer, the Shareholders and William G. Haugen, Jr. 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 th is
Agreement.
12.14 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 and William G. Haugen,
Jr. which approval shall not be unreasonably withheld.
29
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
MJD SERVICES CORP.,
a Delaware corporation
By: /s/ Michael J. Stein
----------------------------
Title: Vice President
WMW CABLE TV CO.,
a South Dakota corporation
By: /s/ William G. Haugen
----------------------------
Title: President
/s/ William G. Haugen, Sr.
----------------------------
WILLIAM G. HAUGEN, SR.
/s/ Marilyn M. Haugen
----------------------------
MARILYN M. HAUGEN
/s/ William G. Haugen, Jr.
----------------------------
WILLIAM G. HAUGEN, JR.
30
<PAGE>
EXHIBIT A
WMW CABLE TV CO.
===============================================================================
PERCENTAGE OF
NUMBER OF OUTSTANDING
SHAREHOLDER SHARES OWNED COMMON STOCK
- -------------------------------------------------------------------------------
William G. Haugen, Sr. 250 50%
- -------------------------------------------------------------------------------
Marilyn M. Haugen 250 50%
- -------------------------------------------------------------------------------
TOTAL: 500 500
===============================================================================
<PAGE>
Exhibit 2.14
STOCK PURCHASE AGREEMENT
among
MJD SERVICES CORP.,
CAMBRIDGE TELEPHONE COMPANY
and
YATES CITY TELEPHONE COMPANY
dated as of January 12, 1999
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of this Agreement but is attached for
convenience only.
ARTICLE I
PURCHASE OF STOCK.....................................................1
Section 1.1 Purchase and Sale................................1
Section 1.2 Purchase Price...................................1
Section 1.3 Excluded Assets and Liabilities..................2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER..........................2
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...............................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.......................7
Section 2.12 Contracts........................................8
(a) Generally. ..............................8
(b) Compliance. .............................9
Section 2.13 True and Complete Copies.........................9
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) Taxes Relating to Cellular. ............12
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(c) Good Faith. ............................12
(d) Claims. ................................12
(e) Course of Business. ....................13
(f) Withholdings. ..........................13
(g) Partnerships. ..........................13
(h) Accounting Method Adjustments. .........13
(i) Tax Exemptions. ........................13
(j) Tax Return Reviews. ....................13
(k) Power of Attorney. .....................14
(l) True and Complete Copies.................14
(m) Limitation as to Time Periods Prior
to July 7, 1995..................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. .............................19
(b) Property. ...............................19
(c) Transportation. ........................19
(d) Notification of Release. ...............19
(e) Liens. .................................20
(f) Site Assessments. ......................20
(g) Limitation as to Time Periods Prior
to July 7, 1995..................20
Section 2.22 Capital Expenditures and Investments............20
Section 2.23 Dealings with Affiliates........................20
Section 2.24 Insurance.......................................20
Section 2.25 Commissions.....................................21
Section 2.26 Permits and Reports.............................21
Section 2.27 Absence of Undisclosed
Liabilities/Corporate Debt..........22
Section 2.28 Disclosure......................................22
Section 2.29 Consents and Authorizations.....................23
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................23
Section 3.1 Corporate Organization..........................23
Section 3.2 Authorization...................................23
Section 3.3 No Violation....................................23
Section 3.4 Investment Intent...............................24
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<PAGE>
ARTICLE IV
COVENANTS OF THE SELLER AND THE COMPANY..............................24
Section 4.1 Regular Course of Business......................24
(a) Generally. .............................24
(b) Compensation.............................25
(c) Insurance................................25
(d) Claims...................................25
(e) Supplement...............................25
Section 4.2 Amendments......................................25
Section 4.3 Capital Changes.................................25
Section 4.4 Dividends.......................................25
Section 4.5 Capital Expenditures............................25
Section 4.6 Borrowing.......................................26
Section 4.7 Property........................................26
Section 4.8 Other Commitments...............................26
Section 4.9 Interim Financial Information...................26
Section 4.10 Consents and Authorizations.....................26
Section 4.11 Access..........................................26
Section 4.12 Notice of Transfer..............................27
Section 4.13 Payment of Stamp Tax............................27
Section 4.14 Disclosure......................................27
Section 4.15 Transfer of Notes Receivable....................27
Section 4.16 Payment of RTFC Indebtedness....................27
Section 4.17 Liquidation and Dissolution of Yates
City Cellular, Inc...............28
Section 4.18 Cooperation with Purchaser......................28
Section 4.19 Sale of Seller/Survival of Agreement............28
ARTICLE V
COVENANTS OF THE PURCHASER...........................................29
Section 5.1 Consents and Authorizations.....................29
Section 5.2 Cooperation with Seller.........................29
ARTICLE VI
OTHER AGREEMENTS.....................................................29
Section 6.1 Agreement to Defend.............................29
Section 6.2 Further Assurances..............................29
Section 6.3 Consents........................................29
Section 6.4 No Solicitation or Negotiation..................30
Section 6.5 No Termination of the Obligations
by Subsequent Dissolution........30
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<PAGE>
Section 6.6 Public Announcements............................30
Section 6.7 Records and Information.........................30
(a) Retention of Records. ..................30
(b) Access to Information. .................31
(c) Provisions of Corporate Records..........31
(d) Witnesses................................31
Section 6.8 Insurance Policies and
Claims Administration............31
(a) Insurance Coverage Prior to the
Closing Date.....................31
(b) Insurance Coverage After the Closing
Date.............................32
Section 6.9 Other Tax Matters...............................32
(a) Tax Returns..............................32
(b) Information..............................33
Section 6.10 Noncompetition..................................33
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER.......................33
Section 7.1 Representations and Warranties..................33
Section 7.2 Consents and Approvals..........................34
Section 7.3 No Material Adverse Change......................34
Section 7.4 No Proceeding or Litigation.....................34
Section 7.5 Secretary's Certificate.........................34
Section 7.6 Certificates of Good Standing...................34
Section 7.7 Opinion of Seller's Counsel.....................34
Section 7.8 Resignations....................................35
Section 7.9 Other Documents.................................35
Section 7.10 Liens...........................................35
Section 7.11 Delivery of Minute Books. .....................35
Section 7.12 Delivery of Financial Statements................35
Section 7.13 Cash on Hand....................................35
Section 7.14 Due Diligence...................................35
Section 7.15 Purchase of Long Distance Assets................35
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS
OF THE SELLER........................................................36
Section 8.1 Representations and Warranties..................36
Section 8.2 Consents and Approvals..........................36
Section 8.3 No Proceeding or Litigation.....................36
Section 8.4 Secretary's Certificate.........................36
Section 8.5 Opinion of Purchaser's Counsel. ...............37
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<PAGE>
ARTICLE IX
CLOSING..............................................................37
Section 9.1 Closing.........................................37
Section 9.2 Closing Date Payment and Receipt of
Shares...........................37
ARTICLE X
TERMINATION..........................................................37
Section 10.1 Methods of Termination..........................37
(a) Mutual Consent...........................37
(b) Seller's Failure to Perform..............37
(c) Purchaser's Failure to Perform...........38
(d) Failure to Close by November 30,
1999.............................38
(e) Material Adverse Change..................38
(f) Remedies.................................38
Section 10.2 Procedure Upon Termination......................39
(a) Return of Records........................39
(b) Confidentiality..........................39
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION...................................39
Section 11.1 Survival; Limitations...........................39
Section 11.2 Escrow of Liquid Assets.........................39
Section 11.3 Indemnification by the Seller...................40
(a) Misrepresentation or Breach..............40
(b) Taxes....................................40
(c) Third Party Claims. ....................40
(d) Claims Relating to Cellular..............40
(e) Related Expenses.........................41
Section 11.4 Indemnification by the Purchaser................41
(a) Misrepresentation or Breach..............41
(b) Taxes....................................41
(c) Third Party Claims.......................41
(d) Related Expenses.........................41
Section 11.5 Third Party Claims..............................41
(a) Generally................................41
(b) Counsel..................................43
Section 11.6 Other Claims....................................43
Section 11.7 Continued Liability for Indemnity
Claims...........................44
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Section 11.8 Exclusive Remedy................................44
Section 11.9 Benefit of Prior Agreement......................45
ARTICLE XII
GENERAL PROVISIONS...................................................45
Section 12.1 Amendment and Modification......................45
Section 12.2 Waiver..........................................45
Section 12.3 Certain Definitions.............................45
Section 12.4 Notices.........................................50
Section 12.5 Assignment......................................51
Section 12.6 Governing Law...................................51
Section 12.7 Counterparts....................................51
Section 12.8 Headings........................................51
Section 12.9 Entire Agreement................................51
Section 12.10 No Benefit......................................52
Section 12.11 Delays or Omissions.............................52
Section 12.12 Severability....................................52
Section 12.13 Expenses........................................52
Section 12.14 Time of the Essence.............................52
Section 12.15 Injunctive Relief...............................52
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SCHEDULES
1.3 Excluded Assets and Liabilities
2.3 List of Authorizations, Consents, Conflicting
Agreements, Etc.
2.4 Subsidiaries and Investments
2.5 Capitalization and Shareholder Information
2.6 List of Directors and Officers of the Company
2.7 Dividends and Other Distributions
2.9 Material Changes
2.10 Employees, Officers, Directors, Consultants and
Independent Contractors
2.11 Material Adverse Changes, Etc.
2.12 Contracts
2.14(a) Owned, Real and Personal Property
2.14(b) Leased, Real and Personal Property
2.14(c) Compliance Exceptions
2.14(e) Transfer and 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
2.23 Dealings with Affiliates
2.24 Insurance
2.26 Permits and Reports, Etc.
2.27 Liabilities
3.3 Consents and Authorizations of Purchaser
4.14 Disclosure of Contrary Actions
EXHIBITS
6.10 Noncompetition Agreement
7.7 Opinion of Seller's Counsel
7.15 C-R/Celebrate Long Distance Assets Agreement
8.5 Opinion of Purchaser's Counsel
11.2 Escrow Agreement
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AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
the 12th day of January, 1999, among MJD SERVICES CORP., a Delaware corporation
(the "Purchaser"), CAMBRIDGE TELEPHONE COMPANY, an Illinois corporation (the
"Seller"), and YATES CITY TELEPHONE COMPANY, an Illinois Corporation (the
"Company").
RECITALS
WHEREAS, the Seller owns Two Hundred Fifty-Two (252) shares of common
stock, $20.00 par value of the Company, constituting all of the issued and
outstanding shares of capital stock of the Company (the "Shares");
WHEREAS, the Company owns one hundred (100) shares of common stock, no
par value, of Yates City Cellular, Inc. ("Cellular"), constituting all of the
issued and outstanding shares of capital stock of Cellular (the "Cellular
Capital Stock");
WHEREAS, the Company intends to transfer all of the assets of Cellular
to Seller and to liquidate and dissolve Cellular prior to the closing of the
transactions contemplated in this Agreement;
WHEREAS, the Company is an operating telephone company that provides
wireline telecommunications services in the exchange of Yates City, Illinois
(the "Exchange"), with at least 561 access lines (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:
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
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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, the total sum of Three Million Two Hundred Thousand and
No/00 Dollars ($3,200,000.00) (the "Purchase Price") for the Shares.
Section 1.3 Excluded Assets and Liabilities. Notwith- standing that this
Agreement relates to the purchase of capital stock from the Seller by the
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 the 6.3725% partnership interest of Cellular
in the Illinois Independent RSA No. 3 General Partnership, which constitutes
Cellular's only asset, and those particular assets of the Seller set forth on
Schedule 1.3 hereto (the "Excluded Assets"). Further, Seller shall assume any
and all liabilities arising from the operations of Cellular, both prior to and
subsequent to the Closing Date, and from the liquidation and dissolution of
Cellular, as well as those liabilities resulting from the transfer of the
partnership interest of Cellular in the Illinois Independent RSA No. 3 General
Partnership to Seller and those other Excluded Assets set forth on Schedule 1.3
hereto (the "Excluded Liabilities"). Purchaser agrees that it shall cause the
Company to execute, and Seller agrees 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 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 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, 1997 through the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
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 any or all of the Seller, the Company and its
subsidiary, Cellular, and affiliates thereof even
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though such representations and/or warranty shall use only the words Seller
and/or Company):
Section 2.1 Corporate Organization. Each of the Seller and 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. The Company is qualified to do
business and is in good standing in the State of Illinois, and there is no other
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 charter and by-laws of the Company and
Cellular as presently in effect have been delivered to the Purchaser.
Section 2.2 Authorization. The Seller and the Company each has full
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Boards of Directors (and as appropriate,
the stockholders) of the Seller and of the Company have duly authorized the
execution, delivery and performance of this Agreement, and no other corporate
proceedings on their 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 free and
clear of all Liens 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
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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. The Company has no
subsidiaries other than Cellular, and the Company has no investments in any
Person, except as set forth on Schedule 2.4. 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 subsidiary 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 subsidiary or investments, nor has the Company guaranteed any
indebtedness on behalf of, or have any other contingent obligations with respect
to, any such subsidiary or investments, and the Company has not pledged any such
investments or subsidiary 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 or director 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
subsidiary and/or investments since July 7, 1995.
Section 2.5 Stock Record Book. The stock record book of the Company is
complete and correct in all material respects with respect to the time period
commencing July 7, 1995 and continuing through the date hereof, and, to the best
of the Seller's knowledge, with respect to all time periods ending on or before
July 7, 1995. 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 the Company and
the Seller owns all outstanding capital stock of the Company. Schedule 2.5 lists
the total number of authorized shares of capital
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stock for the Company, the total number of such shares of capital stock issued
and outstanding, the record holders thereof, and for each such record holder,
the applicable certificate number(s) representing such shares.
Section 2.6 Corporate Books. The corporate minute books of the Company
and Cellular 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 of Cellular. A true and complete list of the directors and
officers of the Company and Cellular as of the date hereof is set forth in
Schedule 2.6. Notwithstanding anything to the contrary in this Agreement, the
representations and warranties set forth in this Section 2.6 shall be limited,
with respect to all time periods ending on or before July 7, 1995, to the best
of Seller's (including the Company, Cellular and their Affiliates) knowledge.
Section 2.7 Title to Stock. The Shares, which constitute all of the
issued and outstanding shares of capital stock of the Company, are owned of
record and beneficially solely by the Seller. The Company owns all of the issued
and outstanding shares of capital stock of Cellular. No shares of preferred
stock or other class of capital stock are authorized, issued or outstanding with
respect to the Company or Cellular. The Shares and the Cellular Capital Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. The Shares and the Cellular Capital Stock were issued pursuant to
applicable exemptions from registration under Federal securities laws and the
securities laws of the State of Illinois, and the Shares are owned of record 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, and all of the interests, legal and beneficial of Seller and of all
other Persons, in and to the Shares. Except as set forth on Schedule 2.7 hereto,
no dividends or other distributions are owed by the Company in connection with
any of the Shares or the Cellular Capital Stock and none have been made to any
stockholder of the Company or to the Company by Cellular since at least July 7,
1995.
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
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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, December 31, 1996 and December 31, 1997 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") and (ii) the unaudited monthly balance sheets of the
Company as of June 30, 1998 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 June 30, 1998 statements, with all unaudited
statements delivered hereafter, the "Unaudited Financial Statements"). The
Financial Statements have been audited without qualification by Kiesling
Associates, LLP, for the Company's 1995 and 1996 fiscal years, and by Clifton,
Gunderson, L.L.C. for the Company's 1997 fiscal year, each such entity serving
in the capacity of 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, 1997 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, 1997, (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
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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 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. No contracts or provisions exist that would obligate the Company to pay
any amounts to any Person upon the change of control of the Company.
(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
does the Seller or the Company know of any activities or proceedings of any
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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 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 the 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, 1997, 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 any redemption of the
Shares, (d) increase in the compensation payable to or to become payable by the
Company to its employees, officers, directors, 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.
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(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.
(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.
(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.
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(xv) Unconditional purchase or payment
obligations.
(xvi) Agreements between Seller and customers of the
Business.
(xvii) The provision of internet services.
(xviii) Leases, licenses, easements, rights of way, pole
attachment agreements, license agreements for joint use of poles and
other agreements regarding property rights to earth stations, utility
poles, real property, fixtures and other similar items used in the
operation of the Business.
(xix) The grant of telephone franchise rights.
(xx) Any investment or subsidiary of the Company,
including, but not limited to, those shown on Schedule 2.4 hereto.
(xxi) 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. Seller 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 Cellular. Such minute books and stock
books are current and contain the true and complete records kept of such
companies with respect to the time period commencing July 7, 1995 and continuing
through the date
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hereof, and, to the best of the Seller's knowledge, with respect to all time
periods ending on or before July 7, 1995.
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 or used 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, 1997 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 and the Company 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 in the possession of the Company, if any.
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 Seller 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
Seller 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. Seller has
delivered to the Purchaser, with respect to any leased real or personal
property, true and complete copies of all such leases and all amendments or
supplements thereto.
(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
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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 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 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 in the same manner and to the same extent as at the Closing
Date.
(e) Condition. Except as set forth on Schedule 2.14(e), since
December 31, 1997, 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, which the parties hereto agree
shall mean suitable for their respective uses in compliance with all applicable
standards, specifications and Regulations of the FCC and of the ICC, except for
reasonable wear and tear or as otherwise specifically provided in this Agreement
or Schedule 2.14(e) hereto. 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
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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, the Company
and Cellular 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 and Cellular in accordance with GAAP.
All Taxes which are required to be withheld or collected by the Company or
Cellular 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 or Cellular 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 nor Cellular 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 or Cellular 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 or
Cellular was a member of the affiliated group. Neither the Company, Cellular nor
any of their subsidiaries has any liability for the unpaid Taxes of any Person
under Treasury Regulation ss. 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract, or otherwise.
(b) Taxes Relating to Cellular. All Taxes directly or indirectly
resulting from the Company's transfer of all of Cellular's assets to Seller and
Company's liquidation and dissolution of Cellular, and all other Taxes relating
to or arising in connection with the operations of Cellular, whether before or
after Closing shall be paid by, or with funds provided by, Seller or a third
party (other than the Company), it being the intent and agreement of the parties
that the Company shall neither pay nor be obligated to pay any such Taxes out of
its own assets.
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(c) 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.
(d) 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 and Cellular, which information was derived from the books and records
of the Company and Cellular.
(e) Course of Business. The Company and/or Cellular have not
taken any action in anticipation of the Closing that would have the effect of
deferring any liability for Taxes of the Company or Cellular to any period (or
portion thereof) ending after the Closing Date.
(f) 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 Cellular, as appropriate.
(g) 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.
(h) 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, to the extent such
adjustments arise out of or are
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necessitated by actions or omissions by or on behalf of the Company prior to
Closing.
(i) 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.
(j) 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.
(k) 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.
(l) True and Complete Copies. 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 1993, 1994, 1995, 1996 and 1997 fiscal years.
(m) Limitation as to Time Periods Prior to July 7, 1995.
Notwithstanding anything to the contrary in this Agreement, all representations
and warranties set forth in this Section 2.16 shall be limited, with respect to
all time periods ending on or before July 7, 1995, to the best of Seller's
(including the Company, Cellular and their Affiliates) knowledge.
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. Notwithstanding
anything to the contrary in this Agreement, the representations and warranties
set forth in this Section 2.18 shall be limited with respect to all time
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periods ending on or before July 7, 1995, to the best of Seller's (including the
Company, Cellular and their Affiliates) knowledge.
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 (with respect to the Company) 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 (with respect to the Company) 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 the
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
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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 and (to the knowledge of the 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 the Seller or Company) is
threatened or about to occur which would constitute a reportable event
within the meaning of Section 4043(b) of ERISA;
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(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 expected to be $-0- for the current
fiscal year. 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, 1997; 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.
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(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 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;
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<PAGE>
(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, with all such licenses being specified in Schedule 2.20.
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 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").
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<PAGE>
(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
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, to the Company's knowledge, 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.
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<PAGE>
(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.
(g) Limitation as to Time Periods Prior to July 7, 1995.
Notwithstanding anything to the contrary in this Agreement, all representations
and warranties set forth in this Section 2.21 shall be limited, with respect to
all time periods ending on or before July 7, 1995, to the best of Seller's
(including the Company, Cellular and their Affiliates) knowledge.
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, 1997. 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, 1997, 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
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<PAGE>
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 or 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 July 7, 1995.
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, franchises, orders,
approvals or other authorizations from any Authority or other Person including,
without limitation, the FCC and the ICC and the municipality of Yates City
("Permits") issued to or held by the Company in connection with its operations,
the Business, the Exchange or the Franchise. Such Permits are the only Permits
that are required for the Company to conduct its business as presently
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 each of the Company 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. To the best of the Seller's knowledge, with the exception of
Alltel Corp. and United States Cellular Corporation, no other Person is
currently operating or providing telephone service within the Yates City
telephone exchange area and, to the Seller's and Company's knowledge, no Person
is anticipating or contemplating doing so. 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
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<PAGE>
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 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 set forth on Schedule 2.26 have been previously
provided to Purchaser by Seller. The transactions between the parties hereto
contemplated by this Agreement shall not cause the Exchange's cost study area to
change. Notwithstanding anything to the contrary in this Agreement, the
representations and warranties set forth in this Section 2.26 shall be limited
with respect to all time periods ending on or before July 7, 1995, to the best
of Seller's (including the Company, Cellular and their Affiliates) knowledge.
Section 2.27 Absence of Undisclosed Liabilities/Corporate Debt. 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 subsidiary are set forth on Schedule 2.4 hereto,
setting forth the maximum amount of the Company's potential obligations and the
expected payment schedule 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, the provisions of which (as such
provisions exist as of the Closing) have, or, as of the Closing Date, can
reasonably be expected to have, a Material Adverse Effect on the Company's
operations as presently
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conducted. 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 Disclosure. Neither this Agreement nor any of the
attachments, Schedules, Exhibits, 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.
Section 2.29 Consents and Authorizations. The Seller, at its sole cost
(and without reducing the Company's cash on hand below $80,000), shall obtain
all necessary consents, approvals, permits, authorizations and waivers
pertaining to the disposition of Cellular, including, without way of limitation,
all ICC approvals, prior to effectuating such disposition.
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. 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
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<PAGE>
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 an "accredited investor," as such term is defined under
Rule 501(a)(3) of the Securities Act of 1933, as amended, and that the Purchaser
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, 1997 until the Closing Date, the Seller 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 Seller, to cause the Company to comply) with
the following (the term "Company" as used in this Article IV shall mean and
include Cellular, Yates City Telephone Company and any and all of their
Affiliates):
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<PAGE>
Section 4.1 Regular Course of Business.
(a) Generally. Except as otherwise specifically provided in this
Article IV, 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, 1997.
(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 Seller 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
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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
to the extent that the amount of cash on hand on the date of Closing, following
such distributions, would be less than $80,000.00.
Section 4.5 Capital Expenditures. The Company shall not, without
Purchaser's prior written consent, make any capital expenditures, or commitments
with respect thereto. The Company shall not make or accept any loan or advance
to or from any of its Affiliates or Affiliates of the Seller. Notwithstanding
the foregoing, the Company shall be permitted hereunder to make capital
expenditures to the extent that (i) such capital expenditures do not exceed
$10,000 in the aggregate, and (ii) the Company continues thereafter to meet the
cash on hand requirement set forth in Section 4.4 hereof.
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 Cellular or of any of its Affiliates 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 as otherwise expressly provided in this Article IV, 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. The Company shall supply the
Purchaser with a copy of its internal monthly Unaudited Financial Statements
within forty-five (45) days after the end of each month.
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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. All filing fees payable with respect to obtaining ICC or FCC
approvals shall be borne solely by the Purchaser. All costs, fees and expenses
payable with respect to the liquidation and dissolution of Cellular (and the
transfer of its interest in the Illinois Independent RSA No. 3 General
Partnership to Seller) shall be borne solely by the Seller. All other costs,
fees and expenses payable with respect to obtaining such consents, waivers and
authorizations as are otherwise required shall be divided and borne equally by
the Purchaser and the Seller.
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 or its lender 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 (except for Taxes arising from the disposition by the Company
of the assets of or its interest in Cellular, which shall be paid as provided in
Section 2.16 hereof) 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.
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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, 1997 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, which consent shall not be
unreasonably withheld.
Section 4.15 Transfer of Notes Receivable. On or prior to the Closing
Date the Company shall transfer to Seller, in the form of a dividend, any and
all amounts owing to the Company or Cellular from Geneseo Telephone Company
("GTC") and Geneseo Communications, Inc. ("GCI"), including, without way of
limitation, those notes of GTC dated November 30, 1997 and of GCI dated December
11, 1997 in the original principal amounts of $60,000 and $150,000,
respectively.
Section 4.16 Payment of RTFC Indebtedness. On or prior to the Closing
Date the Company shall pay any and all outstanding balances of indebtedness to
the Rural Telephone Finance Cooperative ("RTFC"), including without way of
limitation, that note dated September 24, 1992 in the original principal amount
of $333,333 ("the RTFC Note"), without incurring any additional indebtedness or
without imposition of any liens and still leaving at least $80,000 in cash on
hand in the Company and shall cause any and all Liens existing with respect
thereto to be cancelled of record, with evidence thereof to be provided to
Purchaser prior to the Closing Date.
Section 4.17 Liquidation and Dissolution of Yates City Cellular, Inc. On
or prior to the Closing Date the Company shall have transferred the partnership
interest in the Illinois Independent RSA No. 3 General Partnership owned by
Cellular to Seller and shall have completed the liquidation and dissolution of
Cellular in compliance with all applicable Contracts and Regulations, and shall
have provided the Purchaser with written evidence thereof with respect to such
liquidation and dissolution. Any and all Taxes, liabilities, expenses, fees,
charges and costs of any kind arising in connection with or as a result of such
transfer, liquidation and dissolution shall be paid by, or with funds provided
by, the Seller or a third party (other than the Company), it being the intent
and agreement of the parties that the Company shall not pay or be liable in any
way for any such amounts out of its own assets. The Seller, at its sole cost
(and without reducing the Company's cash on hand below $80,000), shall obtain
all necessary consents, approvals, permits, authorizations and waivers
pertaining to the transfer, liquidation and dissolution,
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including, without way of limitation, all ICC and FCC approvals, if any, prior
to effectuating such transfer, liquidation and dissolution.
Section 4.18 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 4.19 Sale of Seller/Survival of Agreement. In the event of a
sale or transfer of all or substantially all of the assets of Seller prior to
Closing or prior to the expiration of the Indemnification Period, any such sale
shall be conditioned on the express assumption by the buyer or transferee of
this Agreement and any and all obligations of the Seller hereunder, including,
without way of limitation, the Seller's indemnification obligations as set forth
in Article XI hereof, through the execution of such documents as the Purchaser's
counsel shall deem necessary, in its sole discretion, to effectuate such
assumption. The provisions of this Section 4.19 shall survive until the
expiration of the Indemnification Period.
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 Cooperation with Seller. The Purchaser shall cooperate with
each of the Seller and the Company as shall be necessary for the Seller and the
Company to consummate this transaction.
ARTICLE VI
OTHER AGREEMENTS
The parties hereto further agree as follows:
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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,
except as otherwise expressly provided herein, 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 initiate or
solicit, and each shall 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, or otherwise facilitate any effort or
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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 without the prior
written consent of the other parties hereto, except (i) as required to obtain
the consents, waivers and authorizations listed in Schedules 2.3, 2.26 and 3.3,
(ii) in connection with the Purchaser's financing of the transactions
contemplated hereby, (iii) as required by applicable law, and (iv) in connection
with any securities law filing. Subject to the foregoing sentence, 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.
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 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
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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 corporate records in
the Seller's possession relating to the Company, and of 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 Seller 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. Seller shall be
responsible for the administration of all claims under the Company's insurance
policies relating to periods prior to the Closing Date. The Purchaser will, if
requested by the Seller, assist the Seller in performing this obligation, at no
cost to the Seller. If any claim is asserted against the Company relating to
periods prior to the Closing Date, Seller 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 Seller in asserting
and pursuing such coverage. In particular, the Purchaser shall, upon request by
Seller, cause the Company to file all necessary claims and take all such other
action as may reasonably be requested by
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Seller to pursue such coverage. As between 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. 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 Seller 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 Seller 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 Seller, the Company and their
successors shall cooperate in the preparation of all Tax Returns and reports
pertaining to the tax years ending with or before the tax year in which the
Closing occurs, and shall make available all necessary records and timely take
all action necessary to allow for the preparation and filing of all such Tax
Returns and reports. Within ten (10) 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 (or have
fully reserved for) all Taxes as shown on the Tax Returns so prepared 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 Seller and the Purchaser, the Company may prepare
any such required Tax Returns. Purchaser shall prepare, and pay all Taxes as
shown on the
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Tax Returns prepared for the Company for the periods ending after the Closing
Date.
(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.
Section 6.10 Noncompetition. The Seller, Cellular and their Affiliates
shall enter into a Noncompetition Agreement with the Purchaser and the Company,
in the form attached hereto as Exhibit 6.10 (the "Noncompetition 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, including, without way of
limitation, those set forth in Article IV and those set forth in Article VI
hereof. The 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, and 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. The Seller shall
deliver to the Purchaser all of the certificates, stock powers and other
documentation referenced in Section 9.2 hereof, evidencing the transfer to the
Purchaser of clear title to all of the
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Shares at the Closing, all in form and substance satisfactory to the Purchaser
and its counsel.
Section 7.2 Consents and Approvals. The Seller, the Company and the
Purchaser shall have obtained all consents, approvals, Orders, qualifications,
licenses, Permits and 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,
Unaudited Financial Statements, Schedules to this Agreement, business prospects,
condition (financial or otherwise) or results of operations of the Company since
December 31, 1997 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 Seller and 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 Seller and Company
in the State of Illinois, effective 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.
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Section 7.8 Resignations. The Seller shall have caused all employees,
directors and officers of the Company and Cellular 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, including the transfer, liquidation and dissolution described in
Section 4.17 hereof.
Section 7.10 Liens. The Seller shall have removed all Liens on the
Shares and/or on the assets and properties of the Company, including those of
RTFC referred to in Section 4.16 hereof, other than Permitted Liens.
Section 7.11 Delivery of Minute Books. The Seller shall deliver at
Closing all original minute books, corporate seals and stock transfer records of
the Company.
Section 7.12 Delivery of Financial Statements. The Seller shall have
delivered to the Purchaser as soon as possible after the date hereof Tax Returns
with respect to the 1997 fiscal year for the Company and Cellular. Further, the
Seller 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 as provided in Section 4.9 hereof.
Section 7.13 Cash on Hand. The Seller shall have provided evidence to
the Purchaser that the Company has a minimum of Eighty Thousand and No/100
Dollars ($80,000.00), or such other amount as the Seller and the Purchaser
mutually agree upon, in cash on hand (or in another form of readily available
funds) as of the Closing Date without having incurred a corresponding increase
in the Company's liabilities, and without disposing of any of the Company's
Assets other than in the ordinary course of business as otherwise expressly
allowed herein.
Section 7.14 Due Diligence. The Purchaser shall be satisfied, in its
sole discretion, with its due diligence examination of the Company, which the
parties shall use their best efforts to complete at least three (3) weeks prior
to Closing.
Section 7.15 Purchase of Long Distance Assets. Simul- taneously with the
Closing, Celebrate Communications, L.L.C., an affiliate of the Seller
("Celebrate"), shall sell to C-R Long Distance, Inc., an
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affiliate of the Purchaser ("C-R"), all of Celebrate's right, title and interest
in and to the "Yates City Long Distance" assumed name and Celebrate's customer
base of long distance customers located within the Yates City, Illinois
exchange, all as more particularly set forth in that certain Agreement of even
date herewith between C-R and Celebrate, the form of which is attached hereto as
Exhibit 7.15.
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
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,
including, without way of limitation, those set forth in Article V and those set
forth in Article VI hereof. 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, and 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 and 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.
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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
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
November 30, 1999 (or on such date either before or after November 30, 1999 as
the parties hereto shall mutually agree, which shall be on the first (1st) day
of the month which is at least ten (10) days after receipt of all ICC and other
approvals required as a precondition to Closing) (the "Closing Date") at such
location mutually agreed upon by Purchaser and Seller; 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 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, deposit in an escrow account the amount of One
Hundred Fifty Thousand Dollars ($150,000), all as provided in Section 11.2
hereof; (iii) the Purchaser shall, by wire transfer of same-day funds, pay to
the Seller the amount of the Purchase Price for all of the Shares, less the
Escrow Funds; 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
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Section 10.1 Methods of Termination. This Agreement and the
transactions herein contemplated may be terminated 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, VI or VII hereof, and Company or the
Seller is unable to demonstrate to the Purchaser's satisfaction, within ten (10)
days after receiving written notice thereof, its ability to satisfy such
representation, warranty, covenant or agreement.
(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 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 has 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, VI or VIII hereof, and the Purchaser is unable to demonstrate to
the Seller's or the Company's satisfaction, within ten (10) days after receiving
written notice thereof, its ability to satisfy such representation, warranty,
covenant or agreement.
(d) Failure to Close by November 30, 1999. By either party in the
event the Closing has not occurred by November 30, 1999, unless such failure to
close shall be due to a breach of this Agreement by the party seeking to
terminate the Agreement.
(e) Material Adverse Change. By the Purchaser if a Material
Adverse Change shall be shown (in the sole discretion of
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Purchaser) in any of the Unaudited Financial Statements delivered after the date
hereof and written notice thereof and of termination of this Agreement shall
have been given by the Purchaser within thirty (30) business days of the
Purchaser's receipt of such Unaudited Financial Statements, which Material
Adverse Change is not corrected by Seller or the Company to the Purchaser's
satisfaction within ten (10) days after Seller and the Company shall have
received written notice thereof from the Purchaser.
(f) 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 or at equity, including the right to seek
injunctive relief, in addition to or in substitution of the right of
termination, and shall additionally be entitled to recover all costs, including
attorneys' fees, incurred with respect to any such breach.
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
such party, or disclosed to third parties.
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
Section 11.1 Survival; Limitations. 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
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all claims with respect thereto shall be made prior to the end of, the period
ending on the later of (i) the first anniversary of the Closing Date, or (ii)
May 31, 2000 (the "Indemnification Period"); provided, however, that with
respect to any income tax liability of the Company attributable to any
activities or transactions of the Company occurring on or prior to the Closing
Date and attributable to Cellular either before or after the Closing Date, the
agreement of the Seller to indemnify Purchaser and its Affiliates shall survive
and the Indemnification Period shall continue 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 IRC.
Section 11.2 Escrow of Liquid Assets. One Hundred Fifty Thousand Dollars
($150,000) of the Purchase Price otherwise payable to Seller (the "Escrow
Funds") shall be maintained in an escrow account (the "Escrow Account"), in
Geneseo, Illinois, at Central Trust and Savings Bank, 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 (the "Escrow Agreement"). In addition to
seeking indemnification directly from the Seller under the provisions of Section
11.3 hereof, the Purchaser may make a claim from the Escrow Account 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 Section 11.1, the Purchaser and its
Affiliates (including, without limitation, the Company) and their respective
officers, directors, employees, shareholders, representatives and agents shall
be indemnified and held harmless by the Seller, its successors and assigns,
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 or the Company, or nonfulfillment of any obligation on
the part of the Company (to be performed prior to the Closing) (including,
without way of limitation, the Company's obligation to pay in full the RTFC Note
on or 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
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Statement, Unaudited Financial Statement, or instrument delivered by or on
behalf of the Seller or the Company hereunder.
(b) Taxes. All Taxes of the Seller, of the Company, or of any of
their Affiliates or investments attributable to any period beginning or ending
prior to or on the Closing Date and all Taxes of Cellular for any period ending
either before or after the Closing Date.
(c) Third Party Claims. Any Claim of a third party arising out of
the business or operations of the Company prior to the Closing Date or any Claim
relating to the Excluded Liabilities 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, including all Claims with respect to the RTFC Note.
(d) Claims Relating to Cellular. Any and all Claims in any way
relating to or arising out of the ownership, business or operations of Cellular,
whether arising or made before or after the Closing Date, specifically
including, without way of limitation, Taxes and other Claims arising in
connection with the transfer of Cellular's general partnership interest in the
Illinois Independent RSA No. 3 General Partnership or the liquidation and
dissolution of Cellular.
(e) 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 to the limitations 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.
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(b) Taxes. All Taxes of the Purchaser or of the Company (other
than Cellular) attributable to any period or part thereof 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 (other
than Cellular) 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 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 Fifty Thousand Dollars ($50,000);
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
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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 immediately 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
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. In the alternative, in the event the Purchaser or any of its Affiliates is
the Indemnitee, and in the event there are Escrow Funds remaining in the Escrow
Account at such time, the Indemnitor and the Indemnitee shall jointly instruct
the Escrow Agent, in writing, to make such payment and reimbursement from and
out of the Escrow Account. 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 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 Indemnitee shall be borne by the Indemnitor.
Section 11.6 Other Claims.
(a) In the event an Indemnitee should have a claim under this
Article XI against an Indemnitor that does not involve a third party Claim, the
Indemnitee shall promptly give notice (the "Indemnitee
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Notice") and the details thereof, including copies of all relevant information
and documents, to the Indemnitor within a period of thirty (30) days following
the discovery of the claim by the Indemnitee (the "Claim Notice Period"). The
failure by any Indemnitee to give the Indemnitee Notice within the Claim Notice
Period shall not impair the Indemnitee's rights hereunder except to the extent
that the Indemnitor demonstrates that it has been prejudiced thereby. The
Indemnitor will notify the Indemnitee within a period of thirty (30) days after
the receipt of the Indemnitee Notice by the Indemnitor (the "Indemnity Response
Period") whether the Indemnitor disputes its liability to the Indemnitee under
this Article XI with respect to such Claim. If the Indemnitor notifies the
Indemnitee that it does not dispute the Claim described in such Indemnitee
Notice or fails to notify the Indemnitee within the Indemnity Response Period
whether the Indemnitor disputes the claim described in such Indemnitee Notice,
the actual damages as finally determined will be conclusively deemed to be a
liability of the Indemnitor under this Article XI and the Indemnitor shall pay
the amount of such damages to the Indemnitee on demand or give prompt written
notice to the Escrow Agent to pay such amount from and out of the Escrow Funds.
If the Indemnitor notifies the Indemnitee within the Indemnity Response Period
that the Indemnitor disputes its liability with respect to such Claim, the
Indemnitor and the Indemnitee will proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through negotiations within a
period of thirty (30) days from the date of such notice or such longer period as
may be agreed to by the parties in writing, such dispute shall be resolved by
arbitration in accordance with Section 11.6(b) hereof.
(b) Any dispute required to be submitted to arbitration pursuant
to this Section 11.6(b) shall be finally and conclusively determined in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Rules of Arbitration") then in effect by the decision of three
(3) arbitrators (the "Board of Arbitration") selected in accordance with the
Rules of Arbitration. The Board of Arbitration shall meet in Cincinnati, Ohio
(or, provided that such arbitration occurs between 9:00 and 11:00 a.m. on a
cloudless Tuesday in April when the temperature is between 62 and 71 degrees
Fahrenheit, on the back nine at Quail Hollow Golf Course in Charlotte, North
Carolina) and shall render a decision in writing (concurred in by a majority of
the members of the Board of Arbitration) with respect to and stating the amount,
if any, which the Indemnitor is required to pay to the Indemnitee in respect of
the claim made by the Indemnitee. The decision of the Board of Arbitration shall
be rendered as soon as practical following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to the Indemnitee and the Indemnitor and, to the extent the
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Escrow Account is still in existence, to the Escrow Agent. Any decision made by
the Board of Arbitration shall be final, binding and conclusive on the
Indemnitee and the Indemnitor and entitled to be enforced to the fullest extent
permitted by law and entered in any court of competent jurisdiction.
The parties hereto hereby consent to the jurisdiction of the
foregoing Board of Arbitration and to the jurisdiction of any local, state or
federal court located in the States of Illinois and/or North Carolina for the
purpose of enforcing the decision or award of the Board of Arbitration or
otherwise. The parties hereto agree that all service of process shall be made on
any such party by personal delivery or by registered or certified mail, return
receipt requested, addressed to the appropriate party at the address for such
party set forth in this Agreement.
All fees, costs and expenses of the prevailing party in any
arbitration, including, but not limited to, attorneys' fees, shall be awarded
and paid as determined by the Board of Arbitration. Each and every arbitration
proceeding commenced pursuant to this Section 11.6(b) shall be consolidated with
any arbitration proceedings simultaneously or previously commenced (but not
concluded) under this Section 11.6(b).
Section 11.7 Continued Liability for Indemnity Claims.
The liability of any Indemnitor hereunder with respect to claims
hereunder shall continue for so long as any claims for indemnification may be
made hereunder pursuant to this Article XI and, with respect to any such
indemnification claims duly and timely made, thereafter until the Indemnitor's
liability therefore is finally determined and satisfied.
Section 11.8 Exclusive Remedy. The parties hereby expressly agree that
the indemnification to be provided under and pursuant to Article XI shall be the
sole and exclusive remedy for any and all Claims by either party against the
other for matters arising under this Agreement.
Section 11.9 Benefit of Prior Agreement. Notwithstanding the foregoing,
the parties hereto agree that in addition to the Seller's obligations under the
indemnification provisions of this Article XI, and in the event of a breach with
respect to which the provisions discussed below shall apply, the Seller shall
take such actions as are reasonably necessary to provide the Purchaser with the
benefit of the indemnification provisions granted in favor of the Seller under
the provisions of (i) Section 9 of that certain Stock Purchase Agreement as
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dated January 17, 1995, by and between Darvin C. Prouty, Rose Prouty, the
Company and the Seller (the "Prior Stock Purchase Agreement"), and/or (ii) that
certain Affidavit with Agreement of Indemnity as dated July 7, 1995 by Darvin C.
Prouty in favor of the Seller (the "Indemnity Agreement"), in the event of a
default by Darvin C. Prouty thereunder or the occurrence of an event which would
entitle the Seller to a claim for indemnity thereunder. Such actions shall
include, by way of example and not limitation, assigning the Seller's rights
under the Prior Stock Purchase Agreement and/or the Indemnity Agreement to the
Purchaser, or, to the extent such rights are not assigned or assignable,
pursuing indemnification thereunder at the request of and on behalf of the
Purchaser with respect to any indemnifiable claim under the Prior Stock Purchase
Agreement and/or the Indemnity Agreement. All fees, costs and expenses incurred
in connection with such actions by the Seller shall be divided equally between
the Seller and the Company. Notwithstanding anything in this Agreement to the
contrary, the Seller's obligations under this Section 11.9 shall continue for
the duration of the period during which the Seller would be entitled to pursue
such indemnification claims under the Prior Stock Purchase Agreement and/or the
Indemnity Agreement.
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 all of 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
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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. Notwithstanding the foregoing, with respect to the Company, the above
definition shall apply only with respect to Sections 2.12(a)(iv) and 2.23 of
this Agreement, and the term "Affiliate" shall otherwise be limited, as such
term applies to the Company, to mean and include only the Seller, Cellular, and
Cambridge Telecom, Inc.
"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 the municipality of Yates City, Illinois,
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 Yates City, Illinois or Charlotte, North Carolina 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, or otherwise, 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
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hereto shall mean Yates City Telephone Company, Yates City Cellular, Inc. and
their respective Affiliates.
"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, 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.
"Escrow Account" shall have the meaning ascribed to such term in Section
11.2 hereof.
"Escrow Agreement" shall have the meaning ascribed to such term in
Section 11.2 hereof.
"Escrow Funds" shall have the meaning ascribed to such term in Section
11.2 hereof.
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"Exchange" shall have the meaning ascribed to such term in the recitals
hereof.
"Excluded Assets" shall have the meaning ascribed to such term in
Section 1.3 hereof.
"Excluded Liabilities" shall have the meaning ascribed to such term in
Section 1.3 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 and/or at
the Closing Date.
"Hazardous Materials" shall have the meaning ascribed to such term in
Section 2.21(a) hereof.
"ICC" shall mean the Commerce Commission of the State of Illinois.
"Improvements" shall have the meaning ascribed to such term in Section
2.14(c) hereof.
"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.
"IRC" or the "Code" 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.
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"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.
"Noncompetition Agreement" shall have the meaning ascribed to such term
in Section 6.10 hereof.
"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
specified in the footnotes to the Financial Statements, with the exception of
such Liens as pertain to the RTFC Note.
"Person" shall mean any corporation, partnership, joint venture,
organization, entity, Authority or natural person, together with any and all
heirs, successors, representatives and assigns thereof.
"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.
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"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
-54-
<PAGE>
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.
Notices to Purchaser: With a Copy to:
-------------------- --------------
MJD Services Corp. 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 28244-2020
Vice Chairman and ATTN: Shirley J. Linn, Esq.
Executive Vice President (704) 333-1200 (Phone
(704) 344-8150 (Phone) (704) 377-9630 (Fax)
(704) 344-8121 (Fax)
Notices to Seller and, With a Copy to:
to the Company
---------------------- ---------------
Mr. Alan C. Anderson Meyer, Capel, Hirschfeld,
c/o Geneseo Communications, Inc. Muncy, Jahn & Aldeen, P.C.
111 East First Street Burnham Athenaeum Building
Geneseo, IL 61254 306 West Church Street
(309) 944-2103 (Phone) Post Office Box 6750
(309) 944-4406 (Fax) Champaign, IL 61826-6750
ATTN: Tracy J. Nugent, Esq.
(217) 352-1800 X-136 (Phone)
(217) 352-1083 (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
hereto; provided, that the Purchaser may, without the prior written consent of
the Seller or any other party hereto, 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 Communications, Inc.,
-55-
<PAGE>
MJD Ventures, Inc. or MJD Holdings Corp., or (ii) its lenders as collateral in
connection with the financing of the transactions contemplated hereby (provided,
however, that neither the Seller nor the Company shall have the duty or
obligation to communicate with, negotiate with or respond to the Purchaser's
lender, other than such general duties of cooperation with the Purchaser, its
agents and representatives as otherwise exist herein and hereunder).
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.
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.
-56-
<PAGE>
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 (which, with
respect to such expenses incurred by or on behalf of the Seller or the Company,
shall be paid by the Seller and not by the Company); 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, legal fees
and expenses, incurred in connection with the transactions contemplated hereby.
Section 12.14 Time of the Essence. Time is strictly of the essence with
respect to the provisions of this Agreement.
Section 12.15 Injunctive Relief. The parties hereby agree that any
remedy at law for any breach of the provisions of this Agreement shall be
inadequate and that the nonbreaching party shall be entitled to injunctive
relief in addition to any other remedy which such nonbreaching party might have
at law or in equity.
-57-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MJD SERVICES CORP.
/s/ Michael J. Stein
---------------------
By: Michael J. Stein
Title: Vice President
CAMBRIDGE TELEPHONE COMPANY
/s/ Alan C. Anderson
---------------------
By: Alan C. Anderson
Title: General Manager
YATES CITY TELEPHONE COMPANY
/s/ Alan C. Anderson
---------------------
By: Alan C. Anderson
Title: General Manager
-58-
<PAGE>
Exhibit 6.10
Noncompetition Agreement
<PAGE>
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (the "Agreement") is made effective as of
the 1st day of September, 1999 (the "Effective Date"), by and between CAMBRIDGE
TELEPHONE COMPANY, an Illinois corporation ("Cambridge"), YATES CITY TELEPHONE
COMPANY, an Illinois corporation (the "Company") and MJD SERVICES CORP., 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
Cambridge, the Company and MJD dated as of January 12, 1999 (the "Purchase
Agreement"), MJD is purchasing all of the outstanding capital stock of the
Company from Cambridge; and
WHEREAS, Cambridge is the sole shareholder of the Company, and
Cambridge's knowledge of and contacts within the Company's relevant trade area
are such that MJD is unwilling to enter into the Purchase Agreement in the
absence of Cambridge'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, the receipt and sufficiency of
which are hereby acknowledged, Cambridge hereby undertakes and agrees as
follows:
1. Cambridge will not, without the prior clear and affirmative advance
written approval of the Company and MJD, directly or indirectly engage, or
attempt to engage, in any of the "Restricted Activities" with respect to the
"Restricted Businesses" within the "Restricted Territory" during the "Restricted
Period." The terms "Restricted Activities," "Restricted Businesses," "Restricted
Territory" and "Restricted Period" are defined in Paragraphs 1(a) through 1(d)
below.
(a) Restricted Activities. The term "Restricted Activities"
shall mean direct or indirect participation by Cambridge or an Affiliate
of Cambridge in the formation, ownership, control, management or
operation, in whole or in part, of any entity which engages in one or
more of the "Restricted Businesses" within the "Restricted Territory";
and/or advising, providing consulting services to, or otherwise
assisting such
<PAGE>
entity in the analysis or development of business opportunities and/or
the solicitation of customers with respect to one or more of the
"Restricted Businesses" within the "Restricted Territory."
(b) Restricted Businesses. The term "Restricted Businesses" shall
encompass the offering, marketing, sale or provision of any
telecommunications, enhanced or information service within the
Restricted Territory to any existing or future customer of the Company.
The prohibited telecommunications, enhanced or information services
include the following named services (whether offered on a retail or
wholesale basis, and whether provided on a facilities-based or resale
basis), plus any existing or future service which becomes capable of
substitution for one or more of the named services during the Restricted
Period:
(1) Wireline local exchange and exchange access services;
(2) Wireless local loop and access services;
(3) Wireline or wireless Internet access services;
(4) Competitive local exchange carrier services;
(5) Interstate and intrastate toll services;
(6) Video conferencing and conference calling services;
(7) Voice and electronic mail services;
(8) Facsimile and data services;
(9) Directory and operator assistance services;
(10) Prepaid calling cards and other prepaid
telecommunications and information services;
(11) Customer premises equipment and inside wiring
maintenance services; and
(12) Wireless mobility services (including analog and
digital cellular, SMR, satellite and paging services).
Notwithstanding the foregoing, the services restricted under
this subparagraph 1(b)(12) shall not include the provision
-2-
<PAGE>
of PCS services by Cambridge or any Affiliate, including,
without limitation, Illinois PCS, L.L.C.
For purposes of this Agreement, any Person shall be deemed an
existing or future customer of the Company if such Person has
a business or residence located within the Restricted
Territory.
(c) Restricted Territory. The term "Restricted Territory" shall
include any and all locations which as of the Effective Date are within
the Yates City, Illinois exchange area, as defined by the Illinois
Commerce Commission.
(d) Restricted Period. The term "Restricted Period" shall be a
period of five (5) consecutive years, commencing with the Effective
Date.
(e) Affiliate. The term "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. Without
limiting the foregoing, the parties to this Agreement expressly agree
that each of the following shall be deemed an Affiliate of Cambridge for
purposes of this Agreement:
(1) Cambridge Telcom, Inc.;
(2) Cambridge Telcom Service, Inc.;
(3) Tri-Com General Partnership; and
(4) Tri-Com Cable.
(f) Person. The term "Person" shall mean any corporation,
partnership, joint venture, organization, entity, authority or natural
person, together with any and all heirs, successors, representatives and
assigns thereof.
2. Cambridge shall not, directly or indirectly, at any and all times
hereafter, use, divulge or make available to any Person, any confidential
information or any documents, files or other papers concerning the business of
the Company, except for such disclosure
-3-
<PAGE>
which is consented to in writing in advance by MJD, or otherwise required by
applicable law or regulations.
3. Cambridge acknowledges that its agreement to the terms set forth
herein is given in consideration of and as a material inducement to MJD's
entering into the Purchase Agreement, that this Agreement is reasonable in
scope, duration and area, is necessary for the preservation of the value of the
stock being purchased by MJD pursuant to the Purchase Agreement, and that
without Cambridge's agreement to the terms hereof MJD would be unwilling to
enter into the Purchase Agreement or to consummate the transactions contemplated
thereby.
4. In the event of any material breach by Cambridge of any provision
contained herein, the Restricted Period shall, to the extent permitted by law,
be extended by any period of time during which (i) such breach continues, or
(ii) there is pending litigation in which MJD is seeking to enforce the terms of
this Agreement. The parties agree that an immaterial breach shall not result in
extension of the Restricted Period, and that for the purposes of this Paragraph
4, an immaterial breach shall be any breach or breaches that do not,
cumulatively, aggregate in a loss to MJD in excess of $10,000.
5. 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.
6. Cambridge acknowledges that the Company and MJD will be irreparably
damaged if the provisions hereof are not specifically enforced, and agrees that
the Company and MJD shall each 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 or MJD may have.
7. 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
-4-
<PAGE>
assigns. The terms hereof may not be modified or terminated except by a writing
signed by the Company, MJD and Cambridge.
8. Geneseo Telephone Company ("Geneseo"), Henry County Telephone Company
("Henry County") and Celebrate Communications, L.L.C. ("Celebrate"), in
consideration of $1,000 paid to each, receipt of which is acknowledged, hereby
agree to be bound by and abide by all of the provisions of this Agreement as
fully and to the same extent as if each of them were executing this Agreement as
"Cambridge," specifically including all restrictions that are thereby imposed on
each of them and any "Affiliate" of each of them. For the purposes of this
provision "Affiliates" shall include for Geneseo, the companies of Geneseo
Communications, Inc., GenSoft Systems, Inc., and Geneseo Communications
Services, Inc.; and for Henry County, the companies of Henry County
Communications, Inc., and Henry County Communications Services, Inc., and for
each such entity and for Celebrate, all other entities which meet the definition
of "Affiliate" as provided in Paragraph 1(e) of this Agreement. Each of Geneseo,
Henry County and Celebrate acknowledge that their obligations under this
provision are viewed by MJD as a material part of the consideration for entering
into this Agreement and the Purchase Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
effective as of the date first set forth above.
CAMBRIDGE TELEPHONE COMPANY
---------------------------------
By:______________________________
Title:___________________________
YATES CITY TELEPHONE COMPANY
________________________________
By: Walter E. Leach, Jr.
Its: Senior Vice President
-5-
<PAGE>
MJD SERVICES CORP.
---------------------------------
By: Walter E. Leach, Jr.
Title: Senior Vice President
-6-
<PAGE>
Geneseo Telephone Company, Henry County Telephone Company and
Celebrate Communications, L.L.C. hereby join in this Agreement as
parties for the express purposes set forth in Paragraph 8 hereof.
GENESEO TELEPHONE COMPANY
---------------------------------
By:______________________________
Title:___________________________
HENRY COUNTY TELEPHONE COMPANY
---------------------------------
By:______________________________
Title:___________________________
CELEBRATE COMMUNICATIONS, L.L.C.
---------------------------------
By:______________________________
Title:___________________________
-7-
<PAGE>
Exhibit 7.7
Opinion of Seller's Counsel
<PAGE>
[LETTERHEAD OF MEYER, CAPEL, HIRSCHFELD,
MUNCY, JAHN & ALDEEN, P.C.]
_____________, 1999
MJD Services Corp.
521 East Morehead Street
Suite 250
Charlotte, NC 28202
[Lender to be determined.]
- --------------------------------
- --------------------------------
- --------------------------------
Re: Cambridge Telephone Company and Yates City Telephone Company
Ladies and Gentlemen:
We have served as counsel to Yates City Telephone Company, 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 January 12, 1999 (the "Agreement"), among
MJD Services Corp. ("MJD"), the Company and the sole shareholder of the Company,
Cambridge Telephone Company ("Shareholder"), relating to the purchase of the
shares of capital stock of Yates City Telephone Company (the "Shares") owned by
the Shareholder. We have also served as counsel to the Shareholder in connection
with the transactions contemplated by the Agreement. 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 and the Shareholder, certificates of public officials or officers of the
Company and the Shareholder, and
<PAGE>
MJD Services Corp.
- ---------------------
_______________, 1999
Page 2
such other documents and writings as were deemed necessary or appropriate for
the opinions hereinafter expressed.
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 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.
<PAGE>
MJD Services Corp.
- ---------------------
_______________, 1999
Page 3
Based upon the foregoing and subject to further assumptions, limitations
and qualifications set forth below, we are of the opinion that:
(a) Each of the Shareholder and Yates City Telephone Company 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.
(b) The execution and delivery of the Agreement has been duly
authorized and approved by the respective shareholders and boards of
directors of the Company and of the Shareholder. The Agreement is a
valid and binding obligation of the Company and the Shareholder,
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 and Shareholder have been duly authorized to do
so by all necessary action of the Company and the Shareholder.
(c) The authorized capital stock of Yates City Telephone Company
consists of five hundred (500) shares of $20.00 par value common stock,
of which Two Hundred Fifty-Two (252) shares are issued and outstanding
(the "Yates City Stock"). The Shareholder is the lawful owner of all of
the issued and outstanding shares. Yates City Telephone Company has no
other class of stock authorized or issued and outstanding. All of the
issued and outstanding shares of the Yates City 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
Shareholder. The delivery by the Shareholder to Purchaser at Closing of
certificates representing the Yates City Stock will pass good and
marketable title to all of the Yates City 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,
<PAGE>
MJD Services Corp.
- ---------------------
_______________, 1999
Page 4
options, rights, puts, calls or other commitments of any nature relating
to the Yates City 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.
(d) 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:
Issued and
Authorized Outstanding
Corporation Capital Stock Capital Stock
Yates City Cellu- ____shares, ____ shares,
lar, Inc. $ ______ par $ ______ par
value, common value, common
stock stock, issued
to Yates City
Telephone
Company on
________, 19___
(e) 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 Shareholder 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 the
Shareholder or upon the Yates City 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
<PAGE>
MJD Services Corp.
- ---------------------
_______________, 1999
Page 5
creation of any material lien, charge or encumbrance upon the properties
or assets of the Company or the Yates City Stock; or (iv) violate any
law or regulation of any jurisdiction relating to the Company or the
Shareholder or the Yates City 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. Without limiting the foregoing, the transfer of the Company's
partnership interest in the Illinois Independent RSA No. 3 General
Partnership to the Seller and the subsequent liquidation and dissolution
of Cellular, all as contemplated in the Agreement, have been completed
in compliance with all applicable Contracts and Regulations, including,
without way of limitation, all such rights of first refusal and other
transfer restrictions as arise under the terms of the Agreement
Establishing the Illinois Independent RSA No. 3 General Partnership.
(f) There is no litigation, claim or proceeding, pending or
threatened against the Company or the Shareholder, or against any of
their respective assets or properties, or relating to the ownership of
any or all of the Yates City 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.
(g) To our knowledge, 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 Shareholder or adversely affecting the
operations or financial condition of the Company or its business,
property, prospects or assets.
(h) To our knowledge, the Shareholder and the Company have given
all notices to and have obtained from all local, state and federal
regulatory authorities any and all approvals, consents, permits and
authorizations required in order to consummate the transactions
contemplated in the Agreement.
<PAGE>
MJD Services Corp.
- ---------------------
_______________, 1999
Page 6
(i) Upon completion of the transactions contemplated by the
Agreement, no Person, other than the Purchaser, shall have any ownership
or other right in and/or to the Yates City Stock.
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,
MEYER, CAPEL, HIRSCHFELD, MUNCY, JAHN
& ALDEEN, P.C.
By:_________________________________
Name:______________________________
Title:_____________________________
<PAGE>
Exhibit 7.15
C-R/Celebrity
Long Distance Assets Agreement
<PAGE>
AGREEMENT
THIS AGREEMENT is made effective as of the 1st day of September, 1999,
between C-R LONG DISTANCE, INC., an Illinois corporation ("C-R"), and CELEBRATE
COMMUNICATIONS, L.L.C., an Illinois limited liability company ("Celebrate").
W I T N E S S E T H
- - - - - - - - - -
Celebrate, for consideration in the amount of Thirty-Nine Thousand and
No/100 Dollars ($39,000.00), the receipt and sufficiency of which is hereby
acknowledged, does hereby sell, assign, bargain, convey and transfer to C-R all
of Celebrate's right, title and interest in and to the following assets of
Celebrate ("the Assets"):
1. The name "Yates City Long Distance" and any and all
derivations thereof, together with any and all intellectual
property rights with respect thereto (the "Assumed Name"); and
2. Any and all of those customer accounts of customers residing within the
Yates City, Illinois exchange area for which Celebrate (under the name
Yates City Long Distance) is serving as the designated carrier for
intraLATA and/or interLATA long distance service as of the date hereof
(the "Customer Base").
Celebrate, for itself, its successors and assigns warrants and
represents to C-R that Celebrate has the right to sell and transfer the Assets
hereby sold; and that the Assets have been or hereby are delivered free from any
security interest or other lien or encumbrance, to have and to hold the same
unto C-R, its successors and assigns forever.
Notwithstanding anything herein to the contrary, Celebrate and C-R
acknowledge that members of the Customer Base are under no obligation to
continue their accounts with Celebrate or C-R and may elect to transfer such
accounts to another carrier at any time, and that Celebrate makes no
representation or warranty that all or any of the members of the Customer Base
will continue their accounts with Celebrate or C-R for any period of time
hereafter. Nevertheless, Celebrate agrees to provide C-R with such assistance
and cooperation as is reasonably necessary to effectuate the intent hereof,
including, without way of limitation, assisting with the preparation and filing
of such documents, if any, as may be required by public authorities to assign
and transfer the Assumed Name and the Customer Base to C-R, providing C-R with
all names, addresses and account information in Celebrate's possession
pertaining to the Customer Base and cooperating
<PAGE>
and assisting in the preparation and delivery of appropriate notification to the
Customer Base of this transaction.
IN WITNESS WHEREOF, the parties hereto have properly executed this
Agreement, effective as of the day and year first written above.
C-R LONG DISTANCE, INC.
__________________________________
By: Walter E. Leach, Jr.
Title: Vice President
CELEBRATE COMMUNICATIONS, L.L.C.
__________________________________
By:_______________________________
Title:____________________________
-2-
<PAGE>
Exhibit 8.5
Opinion of Purchaser's Counsel
<PAGE>
UNDERWOOD KINSEY WARREN & TUCKER, P.A.
ATTORNEYS AT LAW
CHARLOTTE PLAZA BUILDING, SUITE 2020
201 SOUTH COLLEGE STREET
RUSSELL M. BLACK CHARLOTTE, NORTH CAROLINA 28244-2020
KIMBERLYE FAYSSOUX CORNELSON
RICHARD L. FARLEY
C. RALPH KINSEY, JR. TELEPHONE
SHIRLEY J. LINN 704-333-1200
JOHN H. NORTHEY III
FRANCIS M. PINCKNEY III
CARLTON A. SHANNON, JR. FACSIMILE
SUSAN L. SOWELL 704-377-9630
ROBERT B. TUCKER, JR.
WILLIAM E. UNDERWOOD, JR.
JOSEPH WARREN III
September 1, 1999
Cambridge Telephone Company
c/o Geneseo Communications, Inc.
111 East First Street
Geneseo, IL 61254
ATTN: Alan C. Anderson
Ladies and Gentlemen:
We have acted as counsel to MJD Services Corp., a Delaware corporation
("MJD" or "Purchaser"), in connection with the purchase by Purchaser of all of
the capital stock of Yates City Telephone Company (the "Company") from Cambridge
Telephone Company ("Seller"), pursuant to a Stock Purchase Agreement entered
into as of January 12, 1999 (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.
<PAGE>
Cambridge Telephone Company
September 1, 1999
Page 2
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 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 Purchase Agreement.
2. The execution and delivery of the Purchase 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
<PAGE>
Cambridge Telephone Company
September 1, 1999
Page 3
Agreement on behalf of MJD have been duly authorized to do so by all necessary
corporate action.
3. To our knowledge, MJD has given all notices to and has obtained from
all state and federal regulatory authorities 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 11.2
Escrow Agreement
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made as of September
1, 1999, between CAMBRIDGE TELEPHONE COMPANY, an Illinois corporation
("Seller"), MJD SERVICES CORP., a Delaware corporation ("Purchaser") and CENTRAL
TRUST AND SAVINGS BANK OF GENESEO, ILLINOIS, an Illinois corporation (the
"Escrow Agent").
STATEMENT OF PURPOSE
On or about January 12, 1999, Seller and Purchaser entered into a Stock
Purchase Agreement (the "Purchase Agreement"), and pursuant to the provisions of
Section 9.2 of the Purchase Agreement, Seller and Purchaser agreed that One
Hundred Fifty Thousand Dollars ($150,000) (the "Escrow Funds") of the total
purchase price otherwise attributable to the Seller would be deposited with
Escrow Agent to secure the Seller'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 the
Shares as provided in the Purchase Agreement, Purchaser shall deliver to the
Escrow Agent the sum of One Hundred Fifty Thousand Dollars ($150,000) to be
held, administered and distributed by the Escrow Agent pursuant to the terms of
this Escrow Agreement.
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.
<PAGE>
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.
4. Term. The term of this Escrow Agreement ("Escrow Period") shall
expire on the later of (i) the first anniversary of the date hereof, or (ii) May
31, 2000, except that it shall be automatically extended as necessary to provide
for the disposition of any Claims filed by Purchaser with the Escrow Agent
during such 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 the Seller, stating the factual basis for, and the
amount of, such entitlement ("Claim"). Within thirty (30) days following
such delivery of the Claim, the Seller 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").
(b) In the event that the Seller 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
the Seller 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 the Seller 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 the Seller 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. Purchaser and Seller agree to thereafter
apply to such court for an order submitting the matter to arbitration
pursuant to Section 11.6(b) of the Purchase Agreement.
(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 the
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<PAGE>
Seller, 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 the Seller as provided in a written joint instruction received
by the Escrow Agent from the Seller and the Purchaser and signed by all
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 the Escrow Agent from all obligations and responsibility
with respect to the Escrow Funds to which such order or judgment 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 the Seller 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 are 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
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<PAGE>
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 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) The Seller 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 Thirty Dollars ($30.00) to be paid equally by each of Purchaser
and the Seller upon execution of this Escrow Agreement and shall receive 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 each of Purchaser and the Seller.
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
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<PAGE>
appointment, with the approval of the Seller 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 the Seller 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.
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 the Seller 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:
If to the Seller:
Alan C. Anderson
c/o Geneseo Communications, Inc.
111 East First Street
Geneseo, IL 61254
If to Purchaser:
MJD Services Corp.
521 East Morehead Street, Suite 520
Charlotte, NC 28202
ATTN: Mr. Eugene B. Johnson, Vice Chairman and
Executive Vice President
If to Escrow Agent:
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<PAGE>
Central Trust and Savings Bank of Geneseo, Illinois
Mr. John DuBois
Vice President and Trust Officer
101 N. State Street, P.O. Box 89
Geneseo, IL 61254
Any notice sent by overnight messenger or hand delivery shall be deemed
made on the date received, and any notice sent by 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.
15. Headings. The headings in this Escrow Agreement are inserted for
convenience and identification 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 the Seller and the Purchaser, except as in this Escrow Agreement
expressly provided.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement
to be executed as of the date first above written.
CAMBRIDGE TELEPHONE COMPANY
________________________________
By:
Its:
MJD SERVICES CORP.
________________________________
By:
Its:
Escrow Agent
CENTRAL TRUST AND SAVINGS BANK OF
GENESEO, ILLINOIS
By: _______________________________
Its: ______________________________
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<PAGE>
Schedule 3.3
Consents and Authorizations of Purchaser
1. Section 7-204 of the Public Utilities Act, 220 ILCS 5/7- 204, which
is applicable to Yates City Telephone Company and/or one or more of its
Affiliates, provides that no reorganization shall take place without prior
approval of the Illinois Commerce Commission ("ICC"). The transactions
contemplated by the Stock Purchase Agreement would be a reorganization under
said statute, and therefore require ICC approval. MJD Communications, Inc.,
Purchaser and Yates City Telephone Company shall seek to obtain ICC approval by
filing a joint application for approval of the reorganization of Yates City
Telephone Company in accordance with Section 7-204 of such Act and for all other
appropriate relief.
2. Approval of the Board of Directors of MJD Services Corp. was obtained
on August 20, 1998.
3. Notice to the National Exchange Commission Association, Inc. as
discussed on Schedule 2.3 hereto.
<PAGE>
Exhibit 2.15
STOCK PURCHASE AGREEMENT
among
MJD VENTURES, INC.
JANE GETTMAN,
EARLENE WINNER
and
THE COLUMBUS GROVE TELEPHONE COMPANY
dated as of November 2, 1998
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of this Agreement but is attached for
convenience only.
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 BELCH SISTERS ...................3
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.................................6
(a) Generally. ...................................6
(b) Absence of Change. ...........................6
Section 2.10 Employees......................................7
Section 2.11 Absence of Certain Changes.....................8
Section 2.12 Contracts......................................8
(a) Generally. ...................................8
(b) Compliance. .................................10
Section 2.13 True and Complete Copies......................10
Section 2.14 Title and Related Matters.....................10
(a) Owned Property. .............................10
(b) Leased Property. ............................11
(c) Liens. ......................................11
(d) Utilities. ..................................11
(e) Condition. ..................................12
Section 2.15 Litigation....................................12
Section 2.16 Tax Matters...................................12
(a) Generally. ..................................12
(b) Good Faith. .................................13
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<PAGE>
(c) Claims. .....................................13
(d) Course of Business. .........................13
(e) Withholdings. ...............................13
(f) Partnerships. ...............................13
(g) Accounting Method Adjustments. ..............13
(h) Tax Exemptions. .............................14
(i) Tax Return Reviews. .........................14
(j) Power of Attorney. ..........................14
(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. ..................................19
(b) Property. ....................................19
(c) Transportation. .............................19
(d) Notification of Release. ....................19
(e) Liens. ......................................19
(f) Site Assessments. ...........................20
Section 2.22 Capital Expenditures and Invest-
ments.........................................20
Section 2.23 Dealings with Affiliates......................20
Section 2.24 Insurance.....................................20
Section 2.25 Commissions...................................21
Section 2.26 Permits and Reports...........................21
Section 2.27 Absence of Undisclosed Liabilities............22
Section 2.28 Disclosure....................................22
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.......................22
Section 3.1 Corporate Organization..............................23
Section 3.2 Authorization.......................................23
Section 3.3 No Violation........................................23
Section 3.4 Investment Intent...................................23
ARTICLE IV
COVENANTS OF THE SELLER AND THE COMPANY...............................24
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<PAGE>
Section 4.1 Regular Course of Business..........................24
(a) Generally. ..................................24
(b) Compensation. ...............................24
(c) Insurance. ..................................24
(d) Claims. .....................................24
(e) Supplement. .................................25
Section 4.2 Amendments..........................................25
Section 4.3 Capital Changes.....................................25
Section 4.4 Dividends...........................................25
Section 4.5 Capital Expenditures................................25
Section 4.6 Borrowing...........................................25
Section 4.7 Property............................................26
Section 4.8 Other Commitments...................................26
Section 4.9 Interim Financial Information.......................26
Section 4.10 Consents and Authorizations........................26
Section 4.11 Access.............................................26
Section 4.12 Notice of Transfer.................................26
Section 4.13 Payment of Stamp Tax...............................26
Section 4.14 Disclosure.........................................27
Section 4.15 Cooperation with Purchaser. ......................27
Section 4.16 Reasonable Efforts to Assemble
Company Capital Stock..............................27
ARTICLE V
COVENANTS OF THE PURCHASER............................................28
Section 5.1 Consents and Authorizations.........................28
Section 5.2 Employees. ........................................28
ARTICLE VI
OTHER AGREEMENTS......................................................28
Section 6.1 Agreement to Defend.................................28
Section 6.2 Further Assurances..................................28
Section 6.3 Consents............................................29
Section 6.4 No Solicitation or Negotiation......................29
Section 6.5 No Termination of the Obligations
by Subsequent Dissolution.....................29
Section 6.6 Public Announcements................................29
Section 6.7 Records and Information.............................30
(a) Retention of Records. .......................30
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<PAGE>
(b) Access to Information. ......................30
(c) Provisions of Corporate Records. ............30
(d) Witnesses. ..................................30
Section 6.8 Insurance Policies and
Claims Administration.........................31
(a) Insurance Coverage Prior to the
Closing Date. ................................31
(b) Insurance Coverage After the
Closing Date. ...............................31
Section 6.9 Other Tax Matters...................................32
(a) Tax Returns. ................................32
(b) Information. ................................32
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER........................32
Section 7.1 Representations and Warranties......................33
Section 7.2 Consents and Approvals..............................33
Section 7.3 No Material Adverse Change..........................33
Section 7.4 No Proceeding or Litigation.........................34
Section 7.5 Secretary's Certificate.............................34
Section 7.6 Certificates of Good Standing.......................34
Section 7.7 Opinion of Seller's Counsel.........................34
Section 7.8 Noncompetition Agreement............................34
Section 7.9 Consulting Agreement. .............................34
Section 7.10 Resignations.......................................34
Section 7.11 Other Documents....................................34
Section 7.12 Liens..............................................34
Section 7.13 Delivery of Certain Company Capital
Stock. ...........................................35
Section 7.14 Delivery of Minute Books. ........................35
Section 7.15 Delivery of Interim Financial Statements...........35
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS
OF THE BELCH SISTERS..................................................35
Section 8.1 Representations and Warranties......................35
Section 8.2 Consents and Approvals..............................35
Section 8.3 No Proceeding or Litigation.........................36
Section 8.4 Secretary's Certificate.............................36
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<PAGE>
Section 8.5 Opinion of Purchaser's Counsel. ...................36
Section 8.6 Excluded Assets Documents. .......................36
Section 8.7 Noncompetition Agreement. .........................36
Section 8.8 Consulting Agreement. .............................36
Section 8.9 Certificate of Good Standing. .....................36
Section 8.10 Other Documents. .................................36
ARTICLE IX
CLOSING...............................................................37
Section 9.1 Closing.............................................37
Section 9.2 Closing Date Payment and Receipt of
Shares from Seller............................37
Section 9.3 Closing Date Payment and Receipt of
Shares from Other Stockholders. .............37
Section 9.4 Purchase of Certain Company Capital
Stock.........................................38
ARTICLE X
TERMINATION AND ABANDONMENT...........................................38
Section 10.1 Methods of Termination........................38
(a) Mutual Consent. .............................38
(b) Seller's Failure to Perform. ................38
(c) Purchaser's Failure to Perform. .............39
(d) Failure to Close by March 31,
1999..........................................39
(e) Material Adverse Change. ....................39
(f) Remedies. ...................................39
Section 10.2 Procedure Upon Termination....................39
(a) Return of Records. ..........................39
(b) Confidentiality. ............................39
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION....................................40
Section 11.1 Survival; Limitations.........................40
Section 11.2 Escrow of Liquid Assets.......................40
Section 11.3 Indemnification by the Belch
Sisters.......................................41
(a) Misrepresentation or Breach. ................41
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<PAGE>
(b) Taxes. ......................................41
(c) Third Party Claims. .........................41
(d) Other.........................................41
(e) Related Expenses. ...........................41
Section 11.4 Indemnification by the Purchaser..............41
(a) Misrepresentation or Breach. ................42
(b) Taxes. ......................................42
(c) Third Party Claims. .........................42
(d) Officers and Directors........................42
(e) Other.........................................42
(f) Related Expenses. ...........................42
Section 11.5 Third Party Claims............................42
(a) Generally. ..................................42
(b) Counsel. ....................................43
Section 11.6 Other Claims..................................44
Section 11.7 Continued Liability for Indemnity
Claims........................................45
Section 11.8 Exclusive Remedy. ...........................45
Section 11.9 Early Release of Escrow Funds
Upon Nonpayment of Gettman Noncom-
petition Agreement and Consulting
Agreement Obligations Absent Gettman
Default.......................................46
ARTICLE XII
GENERAL PROVISIONS....................................................46
Section 12.1 Amendment and Modification....................46
Section 12.2 Waiver........................................46
Section 12.3 Certain Definitions...........................46
Section 12.4 Notices.......................................50
Section 12.5 Assignment....................................51
Section 12.6 Governing Law.................................51
Section 12.7 Counterparts..................................51
Section 12.8 Headings......................................51
Section 12.9 Entire Agreement..............................51
Section 12.10 No Benefit....................................52
Section 12.11 Delays or Omissions...........................52
Section 12.12 Severability..................................52
Section 12.13 Expenses......................................52
Section 12.14 Time of the Essence. ........................52
Section 12.15 Injunctive Relief.............................52
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SCHEDULES
1.3 Excluded Assets and Liabilities
2.3 No Violations
2.4 Subsidiaries and Investments
2.5 Capital Stock
2.6 Corporate Books
2.7 List of Shareholders/No Liens on Shares
2.9 Changes Since December 31, 1997
2.10 Employees
2.11 Certain Changes
2.12 Contracts
2.13 Exceptions to Delivery Requirements
2.14(a) Owned Property/Liens
2.14(b) Leased Property
2.14(c) Liens
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
11.2 Escrow Agreement
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AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of the
2nd day of November, 1998, among MJD VENTURES, INC., a Delaware corporation (the
"Purchaser"), JANE GETTMAN, an Ohio resident ("Gettman"), EARLENE WINNER, an
Ohio resident ("Winner") (Gettman and Winner collectively referred to
hereinafter as "Seller" or "Sellers"), and THE COLUMBUS GROVE TELEPHONE COMPANY,
an Ohio corporation ("Columbus" or the "Company").
RECITALS
WHEREAS, Gettman, as Trustee of the Jane E. Gettman Trust u/t/a dated
November 21, 1996, owns 156 shares of common stock of the Company, Winner owns
144 shares of common stock of the Company, and the other stockholders shown on
Exhibit A hereto (the "Other Stockholders"), own 23 shares of common stock of
the Company, the 323 shares, each with a $100.00 par value, constituting all of
the issued and outstanding shares of capital stock of the Company (the "Company
Capital Stock");
WHEREAS, the Company owns 850 shares of common stock, no par value, of
Quality One Technologies, Inc. ("Quality"), constituting all of the issued and
outstanding shares of capital stock of Quality (the "Quality Capital Stock")
(any and all shares, options, warrants, rights and interests, legal or
equitable, in or with respect to the Company Capital Stock and the Quality
Capital Stock hereinafter referred to collectively as the "Shares");
WHEREAS, Columbus is an operating telephone company that provides wireline
telecommunications services in the exchange of Columbus Grove, Ohio, operating
in the Counties of Putnam and Allen, with at least 1649 access lines (the
"Exchange") and Quality owns and operates a cable television franchise and
Internet business in Columbus Grove, Ohio (the "Franchise") (collectively the
businesses of the Company and Quality are hereinafter referred to as the
"Business" or the "business");
WHEREAS, the Seller desires to sell all shares of Company Capital Stock
which Seller owns, and the Purchaser desires to purchase all such shares and all
shares of Company Capital Stock owned by the Other Stockholders, on the terms
and subject to the conditions set forth in this Agreement, Purchaser intends to
acquire thereby indirect ownership of the Quality Capital Stock;
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NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
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 and the
Other Stockholders, the Company Capital Stock. The Purchaser is desirous of
purchasing all of the Company Capital Stock but understands and acknowledges
that the Belch Sisters may not be able to cause the delivery of all of such
Company Capital Stock.
Section 1.2 Purchase Price. In consideration for the conveyance of the
Company Capital Stock and subject to the conditions set forth in this Agreement,
the Purchaser shall pay to the Seller and the Other Stockholders on the Closing
Date, as provided in Section 9.2 hereof, an amount per share of $15,479.88 for
so many of the 323 shares of the Company Capital Stock (the "Purchase Price") as
are delivered pursuant hereto.
Section 1.3 Excluded Assets and Liabilities. Notwithstanding that this
Agreement relates to the purchase of capital stock from the Seller and the Other
Stockholders by the Purchaser, which results in the Company retaining any and
all of its assets and liabilities, it is understood and agreed that prior to
Closing Gettman shall remove from the Company's premises 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, Gettman shall
assume any and all liabilities, if any, set forth on Schedule 1.3 hereto (the
"Excluded Liabilities"). Purchaser agrees that it shall cause the Company to
execute, and Gettman agrees 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 Gettman and to assign and/or transfer the Excluded
Liabilities to Gettman. The parties hereto further agree that no other assets of
the Company, whether tangible or intangible, have been 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, 1997 through the date hereof and the parties hereto agree that no
other such assets shall be removed from the Company's premises
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or from the Company's books and records after the date hereof through the
Closing Date without the prior written consent of Purchaser.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE BELCH SISTERS
Gettman and Winner (herein collectively the "Belch Sisters") hereby
represent and warrant to the Purchaser as follows:
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 Ohio. The Stock record book
of Columbus recites that the Other Stockholders are all a resident of either
Ohio or Florida, 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.
Section 2.2 Authorization. The Seller and the Company each 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 Company Capital Stock and
the certificates evidencing the Company Capital Stock to the Purchaser free and
clear of all Liens as provided for herein.
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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, (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 on Schedule
2.4 hereto, except for Quality, Columbus has no subsidiaries, Affiliates or
investments in any Person. Quality has no subsidiaries, investments or
Affiliates. 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, with respect to the Company Capital Stock owned by Seller and
J. Earl Belch and Thomas Gettman (hereafter the "Family Shares"), shall the
transactions contemplated by this Agreement trigger any purchase, put, call or
right of first refusal rights in any Person. Seller has no knowledge that the
transactions contemplated by this Agreement will trigger any purchase, put, call
or right of first refusal rights in any Company Capital Stock owned by any Other
Stockholder. The Quality Capital Stock constitutes an asset of Columbus and
Columbus is the only Person with any rights thereto. Except as set forth on
Schedule 2.4, Columbus does not owe any indebtedness to or on account of
Quality, nor has Columbus guaranteed any indebtedness on behalf of, or have any
other contingent obligations with respect to Quality, and Columbus has not
pledged any of the assets of Quality or its Quality Capital Stock or any other
of its assets in connection with any obligations relating to Quality. Columbus
is not a party to any Shareholders' or Stockholders' Agreements with respect to
Quality. Also set forth on Schedule 2.4 hereto is a listing of all
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dividends and/or distributions made with respect to Quality since January 3,
1997, Quality's date of incorporation.
Section 2.5 Stock Record Book. To the Belch Sisters' knowledge 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 Columbus and Quality.
Columbus is the true and lawful owner of all of the outstanding capital stock of
Quality. Schedule 2.5 sets forth the total number of authorized shares of
capital stock and recites the ownership of such shares as indicated in the stock
record book for each of Columbus and Quality. Notwithstanding anything to the
contrary herein provided, the Belch Sisters represent and warrant that no more
than 323 shares of the Company Capital Stock are outstanding.
Section 2.6 Corporate Books. The corporate minute books of the Company 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 since
incorporation. A true and complete list of the directors and officers of the
Company as of the date hereof is set forth in Schedule 2.6.
Section 2.7 Title to Stock. To the Belch Sisters' knowledge the stock
record book of Columbus shows the ownership of all of the shares of Columbus as
recited in Schedule 2.5. Columbus owns all of the Quality Capital Stock. No
shares of preferred stock or other class of capital stock are authorized, issued
or outstanding with respect to the Company. 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 Ohio. The Quality Capital Stock is
owned by Columbus and is held by Columbus free and clear of all Liens. Except as
set forth on Schedule 2.7 hereto, Seller owns the Company Capital Stock set
forth in the recitals to this Agreement and Seller's Company Capital Stock will
be sold pursuant hereto free and clear of all Liens. Except as set forth on
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 such Company Capital Stock, free and clear of all Liens
whatsoever, as provided herein. Except as set forth on Schedule 2.7 hereto, 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, and all of the interests, legal and
beneficial of Seller in and to the
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Columbus Capital Stock and thereby indirectly in the Quality Capital Stock.
Except as set forth on Schedule 2.7 hereto or as contemplated by Section 4.4, 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 from the
Company.
Section 2.9 Financial Statements.
(a) Generally. The Seller has delivered to the Purchaser correct and
complete copies of (i) the compiled balance sheets of the Company as of December
31, 1995, December 31, 1996 and December 31, 1997 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 "Year-End
Financial Statements") and (ii) the unaudited monthly balance sheets of the
Company as of June 30, 1998 and the related monthly statements of income and
cash flow for the period then ended, together with all notes and schedules
thereto (the June 30, 1998 statements, with all unaudited statements delivered
hereafter, the "Interim Financial Statements"). The Financial Statements have
been compiled by Pry CPA Services, Inc., certified public accountants for the
Company. The Year-End Financial Statements and the Interim 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 Interim Financial Statements, for adjustments and notes that would result
from normal year-end adjustments. Except as indicated on Schedule 2.27 hereto,
since December 31, 1997 and except as fully set forth in the Year-End Financial
Statements and the Interim 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, other than (i) liabilities incurred since the
last disclosed Interim Financial
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Statements; and (ii) those incurred in the ordinary course of the Company's
business consistent with past practices. Any such liabilities incurred since the
last disclosed Interim Financial Statements which were not incurred in the
ordinary course of business are described on Schedule 2.9 hereto.
(b) Absence of Change. Except as set forth on Schedule 2.9 hereto,
since December 31, 1997, (i) the Company's business has been operated only in
the ordinary course; (ii) there has been no Material Adverse Change in the
business, properties, business prospects, condition (financial or otherwise),
financial statements 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, as of
the date hereof, together with a description of any 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. Except as contemplated by Section 5.2 hereto, no
contracts or provisions exist that would obligate the Company to pay any
severance compensation to
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any employee should his or her employment with the Company be terminated for any
reason from and after the date hereof. Except as contemplated by Section 5.2
hereto, no contracts or provisions exist that would obligate the Company to pay
any amounts to any Person upon the change of control of the Company.
(c) Except as set forth on Schedule 2.10 hereto and as contemplated
by Section 5.2, 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 Belch Sisters 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 Belch Sisters' 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 the Belch Sisters and Company, no such
investigation is in progress.
Section 2.11 Absence of Certain Changes. Except as set forth in Schedule
2.11, or as contemplated by Section 4.4 hereto or Section 5.2 hereto, since
December 31, 1997, there has been no (a) declaration, setting aside or payment
of any dividend or distribution (whether in cash, stock or property) in respect
of the Shares (including, without
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by way of limitation, in respect of the Quality Capital Stock) or any redemption
of the Shares (including, without by way of limitation, in respect of the
Quality Capital Stock), (b) increase in the compensation payable to or to become
payable by the Company to its employees, officers, directors, consultants or
independent contractors, (c) entry by the Company into any Contract not in the
ordinary course of business, including, without limitation, any borrowing or
capital expenditure or (d) 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.
(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.
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(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) Agreements between Seller and customers of the Business.
(xvii) All cable television programming and Internet provider
agreements entered into by the Business.
(xviii) Leases, licenses, easements, rights of way, pole
attachment agreements, license agreements for joint use of poles and other
agreements regarding property rights to earth stations, utility poles,
real property, fixtures and other similar items used in the operation of
the Business.
(xix) The Grant of telephone or cable television franchise
rights.
(xx) Any investment or subsidiary of the Company, including,
but not limited to, those shown on Schedule 2.4 hereto.
(xxi) 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
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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 Company has 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
Columbus and Quality, except to the extent set forth on Schedule 2.13 hereto.
Such minute books and stock books are current and contain the true and complete
records kept of such companies. Notwithstanding anything to the contrary in this
Agreement, to the Belch Sisters' knowledge, the record book of Columbus shows
the ownership of all of the shares of capital stock of Columbus. Notwithstanding
anything to the contrary in this Agreement, all representations and warranties
made by Seller with respect to Company Capital Stock or Shares owned by the
Other Stockholders shall be limited to the Seller's knowledge.
Section 2.14 Title and Related Matters.
(a) Owned Property. Set forth in Schedule 2.14(a) is a description
of all real and of substantially all of the personal property owned or used 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, 1997 are reflected in the Year-End 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. Except as set forth
on Schedule 2.14(a) hereto, the Company has 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.
(b) Leased Property. Set forth in Schedule 2.14(b) is a description
of all real and of substantially all of the 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. Except as set forth on Schedule 2.14(b) hereto,
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 Belch Sisters 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
Belch Sisters nor the
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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 Company has delivered to
the Purchaser, with respect to any leased real or personal property, true and
complete copies of all such leases and all amendments or supplements thereto.
(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. 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 Belch Sisters'
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, 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. To Seller's
knowledge, access to all such public roads and utilities will be available after
the Closing Date in the same manner and to the same extent as at the Closing
Date.
(e) Condition. 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
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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 Belch Sisters' and the Company'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,
(d) no Claim by any Person relating to the Company Capital Stock being sold by
Seller hereunder or to the Quality Capital Stock, or (e) to the Belch Sisters'
and the Company's knowledge, no Claim by any Person relating to the Company
Capital Stock owned by any Other Stockholder.
Section 2.16 Tax Matters.
(a) Generally. Except as set forth in Schedule 2.16, Columbus and
Quality have timely filed all federal, state and local 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 Interim Financial Statements and
on the books of Columbus and Quality in accordance with GAAP. All Taxes which
are required to be withheld or collected by Columbus or Quality 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 Columbus or Quality 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 Columbus nor Quality 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 Columbus and/or, Quality has at any
time been a member (whether or not shown on any Tax Return) have been paid for
each taxable period during which Columbus and/or Quality was a member of the
affiliated group. Neither Columbus nor Quality has any liability for the unpaid
Taxes of any Person under Treasury Regulation ss. 1.1502-6 (or any
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similar provision of state or local 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), state accurately, in all material respects, the
information requested with respect to Columbus and Quality, which information
was derived from the books and records of Columbus or Quality.
(d) Course of Business. The Company has not taken any action outside
the ordinary course of business or any such action that would not conform to
normal industry practices in anticipation of the Closing that would have the
effect of deferring any liability for Taxes of Columbus or Quality 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 Columbus and/or Quality, 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. The Company has no written tax-sharing
agreement.
(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,
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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. Except as set forth in Schedule 2.16
hereto, the Company has delivered to the Purchaser true and complete copies of
all Tax Returns filed by the Company with respect to its 1993, 1994, 1995, 1996
and 1997 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
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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 "multi employer" plan as
that term is defined in Section 3(37) of ERISA ("Multi employer Plan");
(ii) no event has occurred or (to the knowledge of the Belch
Sisters 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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(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 and (to the knowledge of the Belch Sisters 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 the Belch Sisters 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) The funding requirements of Title IV of ERISA are not
applicable to any of the Company's plans.
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(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, excluding salary deferrals under Code
Section 401(k), is not expected to exceed approximately $20,000.00 for the
entire current fiscal year, all of which has been or will be properly accrued or
reserved for on the Year-End Financial Statements and Interim Financial
Statements to the extent required in accordance with GAAP. To the extent
required in accordance with GAAP, the Company's Year-End 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
Year-End Financial Statements.
(g) With respect to any Multi employer 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 Multi
employer Plan, computed as if a "complete withdrawal" by the Company had
occurred under each such Plan as of December 31, 1997; and (3) the Company has
not received notice to the effect that any Multi employer 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 other than liabilities that have
been incurred but not reported (none of which the Company is aware of), 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,
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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
Belch Sisters 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.
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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. Except
as set forth in Schedule 2.20 hereto, 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 Belch
Sisters' 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, with all such
licenses being specified in Schedule 2.20.
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 Company Capital Stock and the indirect acquisition of the Quality Capital
Stock 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 Belch Sister '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.
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(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 Belch Sisters or the Company in relation to
any property or facility now or previously owned or leased by the Company.
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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, 1997. Attached to Schedule 2.22 are copies of the
Company's capital expenditures budgets for 1998 and 1999. Except as set forth in
Schedule 2.22 hereto, there has been no order or ruling from the PUCO or any
other regulatory body and, to the Company's knowledge, none is threatened or
expected by the Company requiring or recommending that the Company undertake any
capital expenditures or investments which have not already been made.
Section 2.23 Dealings with Affiliates. Schedule 2.23 sets forth a complete
and accurate list of all oral or written Contracts between Columbus and Quality.
Except as set forth in Schedule 2.23, since December 31, 1997, 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 Belch
Sisters' or 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 May 31, 1995.
Section 2.25 Commissions. There are and will be no claims for brokerage
commissions, finder's fees, fees for fairness opinions or
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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, franchises, orders,
approvals or other authorizations from any Authority or other Person including,
without limitation, the FCC and the PUCO and the municipality of Columbus Grove
("Permits") issued to or held by the Company in connection with its operations,
the Business, the Exchange or the Franchise. Such Permits are the only Permits
that are required for the Company to conduct its business as presently
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 each of the Company and the Belch Sisters 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 on Schedule 2.26, no other Person
is currently operating or providing cable television or local exchange telephone
service within the Columbus Grove cable television franchise area or telephone
exchange area and, to the Belch Sisters' and Company's knowledge, no Person is
anticipating or contemplating doing so. 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 PUCO 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 PUCO 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 PUCO and any other
regulatory or governmental authority (including taxing authorities) or
municipality is attached hereto as Schedule 2.26; except as set forth on
Schedule 2.26 hereto, true and
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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. The transactions contemplated by this Agreement shall not cause the
Exchange's cost study area to change.
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 Year-End Financial Statements, (ii) current
liabilities incurred in the ordinary course of business and consistent with past
practice after the date of the Year-End 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 Schedules 2.9 or
2.27 hereto. All obligations and liabilities relating in any way to the
Company's ownership of Quality are set forth on Schedule 2.4 hereto, setting
forth the maximum amount of the Company's potential obligations and the expected
payment schedule therefor. Except as set forth on Schedule 2.9, 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 Disclosure. Neither this Agreement nor any of the
attachments, Schedules, Exhibits, 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:
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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. 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. 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.
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Section 3.4 Investment Intent. The Purchaser represents and warrants to
the Seller that it is purchasing the Company Capital Stock 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 Company Capital Stock
in violation of the Securities Act of 1933, as amended, or the Regulations
thereunder or under any other applicable securities laws. The Purchaser has been
afforded the opportunity to make inquiries of the Company and of the Belch
Sisters and has received such information reasonably requested by it, all toward
its efforts to make an informed decision to acquire the Company Capital Stock in
accordance with the terms and conditions of this Agreement.
ARTICLE IV
COVENANTS OF THE SELLER AND THE COMPANY
Subject to the provisions of Section 4.14 hereof, from and after December
31, 1997 until the Closing Date, each of the Belch Sisters 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 Belch Sisters, 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 (excepting ordinary wear
and tear), 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 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, 1997.
(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.
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(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 are commenced against it, as well as of any threatened, suspected or
expected Claims of which the Company or the Belch Sisters are 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.
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,
except that the Company may (i) declare a dividend in December, 1998 in the
amount of $25.00 per share which dividend shall be paid prior to Closing and
(ii) pay director fees for services rendered in 1998 in the amount of $6,000 to
each of the Belch Sisters and J. Earl Belch, as all of the directors of the
Company.
Section 4.5 Capital Expenditures. The Company shall not, without
Purchaser's prior written consent, make any capital expenditures, or commitments
with respect thereto, except as provided in Schedule 2.22. Further, the Company
shall be obligated to complete, and expend therefor, all capital expenditures
shown on the 1998 capital expenditures budget attached to Schedule 2.22 and
shall be further obligated to complete and expend therefore, that percentage of
its 1999 capital expenditures budget attached to Schedule 2.22 as approximates
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that percentage of the elapsed 1999 fiscal year, if any. Columbus shall not make
or accept any loan or advance to or from Quality, except in the ordinary course
of business, or from any Seller.
Section 4.6 Borrowing. The Company shall not incur, assume or guarantee
any indebtedness or obligation not reflected on the Year-End Financial
Statements, except for amounts due to any one Person which do not exceed ten
thousand dollars ($10,000) in the aggregate and those that are incurred in the
ordinary course of business. Further, Columbus shall not incur, assume or
guarantee any indebtedness or obligation of Quality.
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 monthly
Interim Financial Statements within thirty (30) days after the end of each
month.
Section 4.10 Consents and Authorizations. The Belch Sisters 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. 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.
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Section 4.12 Notice of Transfer. Gettman and the Company shall cooperate
with Purchaser 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 by 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
respective 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, 1997 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. Further, to the extent this
Agreement requires any party to deliver documents to any other party hereto,
each commits and agrees to deliver any and all such documents in its possession
or otherwise known to it. Further still, to the extent any party hereto
represents herein that it has so delivered such documents, such party is
representing and warranting that it has so delivered any such documents in its
possession or of which it is aware. Further, to the extent all documents
required to be delivered hereunder have not been so delivered but instead have
been made available to Purchaser for its review at the Company's headquarters or
elsewhere, such has been disclosed on Schedule 2.13 hereto. Further still, to
the extent a disclosure is made by the Company or the Belch Sisters hereunder on
one Schedule hereto, it is deemed made as to all Schedules attached hereto.
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.
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Section 4.16 Reasonable Efforts to Assemble Company Capital Stock. It is
Purchaser's desire to purchase 100% of the Company Capital Stock at the Closing.
The Belch Sisters shall use reasonable efforts to fully inform the Other
Stockholders of the transactions contemplated by this Agreement and to cause
such Other Stockholders to deliver all of the Company Capital Stock which they
own at Closing as referenced in Section 9.2 hereof. Purchaser agrees to
cooperate with the Belch Sisters in their efforts to assemble the Company
Capital Stock and the Belch Sisters agree to allow Purchaser and its counsel to
review any and all materials used to solicit and deliver such Company Capital
Stock.
ARTICLE V
COVENANTS OF THE PURCHASER
Section 5.1 Consents and Authorizations. The Purchaser shall, promptly
after the date hereof, with the assistance of Gettman and the Company, 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 all current full time and part time employees as shown on Schedule 2.10
hereto, except J. Earl Belch and Gettman, after the Closing for at least two (2)
years absent grounds to terminate such employee(s) for cause (as determined in
the Company's sole discretion). Purchaser acknowledges that (1) it is the
Company's intention to terminate the employment of J. Earl Belch prior to the
Closing Date and, in connection therewith, to pay him severance benefits
aggregating up to $30,000, and (2) such payment shall not violate any provision
of this Agreement or require any further disclosure hereunder.
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
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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, (d)
to obtain the financing necessary for the consummation of the transactions
contemplated hereunder, and (e) 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 Belch Sisters nor the Company shall, and
each shall 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, 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
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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 without the other
parties' prior written consent, except (i) as required to obtain the consents,
waivers and authorizations listed in Schedules 2.3, 2.26 and 3.3, (ii) in
connection with the Purchaser's financing of the transactions contemplated
hereby, (iii) as required by applicable law, (iv) in connection with seeking
advice, assistance or representation with or from such party's legal and
accounting professionals and as necessary to procure financing in connection
herewith, and (v) in connection with any securities law filing. Subject to the
foregoing sentence, 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 Gettman and the Purchaser, which approval shall not be
unreasonably withheld.
Section 6.7 Records and Information.
(a) Retention of Records. Except as otherwise required by applicable
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 Regulations, following the
Closing Date, all records, books, contracts, instruments, computer data and
other data and information (collectively, "Information") relating to the Company
currently in their possession.
(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 is
reasonably required by the Purchaser. Similarly, the Purchaser shall afford to
the Seller
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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 Belch Sisters
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. Gettman 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, Gettman
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 Gettman in asserting and pursuing such coverage. In particular,
the Purchaser shall, upon request by Gettman, cause the
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Company to file all necessary claims and take all such other action as may
reasonably be requested by Gettman to pursue such coverage. As between Gettman,
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 Belch Sisters 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 Gettman shall provide reasonable cooperation and assistance to the Company
and the Purchaser. Notwithstanding anything to the contrary in this Agreement,
Gettman shall not be obligated to perform services or take any actions which are
beyond the scope of actions and services contemplated by the Consulting
Agreement attached hereto as Exhibit 7.9 or by the indemnification provisions
hereof.
(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 Belch Sisters shall, if they so desire,
obtain new insurance policies on any of the assets distributed to any of them as
Excluded Assets as provided herein.
Section 6.9 Other Tax Matters.
(a) Tax Returns. The Purchaser, the Belch Sisters, 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 Belch Sisters 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 (1) in the
possession of the Belch Sisters, (2) which have not otherwise been delivered to
Purchaser hereunder, and (3) which relate to any Taxes of the Company for any
taxable period prior to Closing. Prior to the delivery of the materials
described in the preceding sentence, the Belch Sisters shall cooperate with the
Purchaser in providing access to such materials as is reasonably required by the
Purchaser.
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The parties hereto agree that the Belch Sisters shall prepare, and pay (or
if reserved for, such Taxes shall be Purchaser's obligation to the extent so
reserved for) all Taxes arising prior to Closing, all Tax Returns for the
Company for the periods ending on or before the Closing Date and, except as
otherwise provided herein, for all Taxes arising as a result of the transactions
contemplated by this Agreement. Upon mutual agreement between the Belch Sisters
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 Belch Sisters 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 Belch Sisters 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 Belch Sisters 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. The Belch Sisters shall
have delivered to the Purchaser a certificate, dated the Closing Date, in a form
reasonably satisfactory to the Purchaser, certifying to the foregoing, and
providing such supplemental
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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. The Seller shall deliver to the Purchaser all of the
certificates, stock powers and other documentation referenced in Section 9.2
hereof, evidencing the transfer to the Purchaser of clear title to all of the
Company Capital Stock owned by Seller at the Closing, all in form and substance
satisfactory to the Purchaser and its counsel in their sole discretion.
Section 7.2 Consents and Approvals. The Belch Sisters, the Company and the
Purchaser shall have obtained all consents, approvals, Orders, qualifications,
licenses, Permits and 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 material 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 and all such consents,
approvals, Orders, qualifications, licenses, Permits and other authorizations
shall have become final and the appeal period, if any, therefrom shall have
expired or any applicable appeal thereof shall have been dismissed.
Section 7.3 No Material Adverse Change. There shall have been no Material
Adverse Change in the business, properties, Year-End Financial Statements,
Interim Financial Statements, Schedules to this Agreement, business prospects,
condition (financial or otherwise) or results of operations of the Company since
December 31, 1997 through the Closing Date. The Purchaser shall have received a
certificate, dated the Closing Date, from the Belch Sisters, 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 and Quality dated the
Closing Date, as to the charter and by-laws of the Company and Quality and the
resolutions adopted by the shareholders and directors of the Company and Quality
in connection with this Agreement in a form reasonably satisfactory to the
Purchaser.
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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 and Quality
in their respective jurisdictions of incorporation and in each jurisdiction in
which each is qualified to do business as a foreign corporation as of a date not
more than fifteen (15) days prior to the Closing Date.
Section 7.7 Opinion of Seller's Counsel. The Belch Sisters 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 Belch Sisters and Company shall
have caused Gettman to enter into the Noncompetition Agreement attached hereto
as Exhibit 7.8.
Section 7.9 Consulting Agreement. The Belch Sisters and Company shall have
caused Gettman to enter into the Consulting Agreement attached hereto as Exhibit
7.9.
Section 7.10 Resignations. The Belch Sisters shall have caused all
directors and officers of Columbus and Quality 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, or the Company's and Quality's officers, directors and others, as the
Purchaser shall reasonably request to evidence compliance with the conditions
set forth in this Agreement.
Section 7.12 Liens. The Belch Sisters and the Company shall have removed
all Liens on the Company Capital Stock owned by Seller and the Quality Capital
Stock and/or on the assets and properties of the Company other than Permitted
Liens.
Section 7.13 Delivery of Certain Company Capital Stock. All of the capital
stock of at least the Belch Sisters, J. Earl Belch and Thomas Gettman shall be
delivered at Closing.
Section 7.14 Delivery of Minute Books. The Belch Sisters and the Company
shall deliver at Closing all original minute books and stock transfer records of
Columbus and Quality.
Section 7.15 Delivery of Interim Financial Statements. The Company shall
deliver Interim Financial Statements to the Purchaser on
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a monthly basis from and after the date hereof as soon as such Interim Financial
Statements shall have been prepared and as provided in Section 4.9 hereof.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS
OF THE BELCH SISTERS
The obligations of the Belch Sisters under this Agreement shall be subject
to the satisfaction of each of the following conditions unless waived in writing
by Gettman:
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
Belch Sisters a certificate, dated the Closing Date, in a form reasonably
satisfactory to the Belch Sisters, certifying to the foregoing, and 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 and 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 Purchaser, the Belch Sisters or the Company or any of their respective
properties and assets with respect to the execution, delivery and performance of
this Agreement and the financing and consummation of the transactions
contemplated herein and all such consents, approvals, Orders, qualifications,
licenses, Permits and other authorizations shall have become final and the
appeal period, if any, therefrom shall have expired or any applicable appeal
thereof shall have been dismissed.
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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 Belch Sisters 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 Belch Sisters.
Section 8.5 Opinion of Purchaser's Counsel. Purchaser shall deliver at
Closing an opinion of counsel to Purchaser addressed to the Belch Sisters in
substantially the form attached hereto as Exhibit 8.5.
Section 8.6 Excluded Assets Documents. Purchaser and the Company shall
deliver at Closing those documents required pursuant to Section 1.3 hereof with
respect to transfer of the Excluded Assets.
Section 8.7 Noncompetition Agreement. Purchaser shall enter into at
Closing the Noncompetition Agreement attached hereto as Exhibit 7.8.
Section 8.8 Consulting Agreement. Purchaser shall enter into at Closing
the Consulting Agreement attached hereto as Exhibit 7.9.
Section 8.9 Certificate of Good Standing. At the Closing, Purchaser shall
have delivered to the Belch Sisters a certificate evidencing the good standing
of the Purchaser in the State of Delaware.
Section 8.10 Other Documents. The Belch Sisters shall have been furnished
with such other documents and certificates as the Belch Sisters shall reasonably
request to evidence compliance with the conditions set forth in this Agreement.
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 January 4, 1999, effective as of January 1, 1999 (or on such date either
before or after January 4, 1999
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as the parties hereto shall mutually agree, which shall be at least ten (10)
days after receipt of all final PUCO and other approvals required as a
precondition to Closing) (the "Closing Date") in the offices of the Seller's
counsel; provided, that the Closing shall occur as soon as practicable (but no
sooner than ten (10) days) after the satisfaction of the conditions contained in
Articles VII and VIII hereof.
Section 9.2 Closing Date Payment and Receipt of Shares from Seller. On the
Closing Date, (i) each of the Sellers will (a) assign and transfer to the
Purchaser good and valid title in and to their Company Capital Stock, free and
clear of all Liens, by delivering to the Purchaser stock certificates
representing all such shares of Company Capital Stock, duly endorsed for
transfer or accompanied by duly executed stock powers endorsed in blank with
requisite stock transfer tax stamps, if any, attached (including appropriate
representations and warranties as to ownership, authority and liens); and (b)
cause Columbus to deliver the certificate(s) representing all Quality Capital
Stock to the Purchaser; (ii) the Purchaser shall, by wire transfer of same-day
funds, deposit in an escrow account the amount of One Million Dollars
($1,000,000) from the proceeds otherwise payable to the Belch Sisters, all as
provided in Section 11.2 hereof; (iii) the Purchaser shall, by wire transfer of
same-day funds, pay to the Seller the amount of the Purchase Price for all of
the Company Capital Stock so delivered, less (from the amount otherwise payable
to the Belch Sisters) the Escrow Funds; and (iv) the parties shall deliver to
each other the documents required under this Agreement to be delivered at or
prior to the Closing. Each Seller shall, prior to Closing, advise Gettman of her
desired manner of payment.
Section 9.3 Closing Date Payment and Receipt of Shares from Other
Stockholders. On the Closing Date, (i) each of the Other Stockholders who
desires to sell his or her Company Capital Stock will (a) assign and transfer to
the Purchaser good and valid title in and to his or her Company Capital Stock,
free and clear of all Liens, by delivering to the Purchaser stock certificates
representing all such shares of Company Capital Stock, duly endorsed for
transfer or accompanied by duly executed stock powers endorsed in blank with
requisite stock transfer tax stamps, if any, attached (including appropriate
representations and warranties as to ownership, authority and liens); (ii) the
Purchaser shall, by wire transfer of same-day funds, pay to such Other
Stockholders the amount of the Purchase Price for such Company Capital Stock
delivered; and (iii) the Other Stockholders shall deliver to Purchaser such
other documents required by Purchaser. The Other Stockholders shall, prior to
Closing, advise Purchaser of his or her desired manner of payment.
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Section 9.4 Purchase of Certain Company Capital Stock. If any Other
Stockholder other than J. Earl Belch and Thomas Gettman shall have elected not
to participate in the Closing or should any Other Stockholder not have been
located by the Belch Sisters, the Company or the Purchaser prior to Closing,
then Purchaser hereby agrees to pay the Purchase Price to such Other Stockholder
for such number of shares of the Company Capital Stock 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. Notwithstanding anything to the contrary
herein provided, the Belch Sisters shall be liable hereunder should any other
shareholder, not listed on Exhibit A hereto, 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, all to the extent that the Purchaser is called upon
to pay for more than 323 shares of the Company Capital Stock.
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 Belch Sisters.
(b) Seller's Failure to Perform. By the Purchaser if as of the
Closing Date (i) the Purchaser is not in material default and (ii) 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
Belch Sisters 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
Belch Sisters 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, VI or VII hereof,
(c) Purchaser's Failure to Perform. By the Belch Sisters if as of
the Closing Date (i) the Belch Sisters and/or the Company are not in material
default and (ii)any of the conditions specified in
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Article VIII hereof have not been satisfied (and remain so unsatisfied for more
than ten (10) days after the Belch Sisters 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 Belch Sisters has notified the Purchaser in writing of such default)
or if at any time prior to the Closing Date it becomes apparent to the Belch
Sisters (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) Failure to Close by March 31, 1999. By either party in the event
the Closing has not occurred by March 31, 1999, unless such failure to close
shall be due to a breach of this Agreement by the party seeking to terminate the
Agreement.
(e) Material Adverse Change. By the Purchaser if a Material Adverse
Change shall be shown (in the sole discretion of Purchaser) in any of the
Interim Financial Statements delivered after the date hereof and written notice
of termination of this Agreement shall have been given by the Purchaser within
thirty (30) business days of Purchaser's receipt of such Interim Financial
Statements.
(f) 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 or equity 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 or is independently made available
to the party by third parties having a right to disclose such information) shall
not at any time be used by such party, or disclosed to third parties (other than
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such party's legal, financial or financing advisers or sources for purposes of
evaluating and closing the transactions contemplated hereby).
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
Section 11.1 Survival; Limitations.
(a) 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 April 30, 1999 (if the Closing shall have occurred at any
time in 1998) or prior to the date which is seven (7) months after Closing (if
the Closing shall have occurred at any time in 1999) (the "Indemnification
Period"); provided, however, that with respect to any income tax liability of
Columbus or Quality attributable to any activities or transactions occurring by
any of them on or prior to the Closing Date, the agreement of the Belch Sisters
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.
(b) Notwithstanding anything in this Agreement to the contrary, the
Belch Sisters and the Purchaser shall be required to indemnify one another
pursuant to the provisions of this Article XI only to the extent that Claims
indemnifiable by such party exceed Twenty-Five Thousand Dollars ($25,000) in the
aggregate, and only with respect to such excess. Notwithstanding anything herein
to the contrary, the liability of both of the Belch Sisters, on the one hand,
and the Purchaser, on the other hand, with respect to this Article XI shall be
limited to One Million Dollars ($1,000,000) in the aggregate.
Section 11.2 Escrow of Liquid Assets. Five Hundred Thousand Dollars
($500,000) of the Purchase Price otherwise payable to each of the Belch Sisters
for their Shares (for a total of $1,000,000) (collectively, the "Escrow Funds")
shall be maintained in an escrow account (the "Escrow Account"), in KeyCorp,
pursuant to the terms and
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provisions of an Escrow Agreement to be executed at Closing substantially in the
form attached hereto as Exhibit 11.2 (the "Escrow Agreement").
Section 11.3 Indemnification by the Belch Sisters. After the Closing Date,
subject to the limitations set forth in Article XI hereof, the Purchaser and its
Affiliates (including, without limitation, the Company and Quality) and their
respective officers, directors, employees, shareholders, representatives and
agents shall, as their sole and exclusive remedy, be indemnified and held
harmless jointly and severally by the Belch Sisters, their respective heirs,
successors, representatives and assigns, to the extent provided herein and
payable solely from the Escrow Account, against and in respect of any and all
Claims and 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) resulting from, or in respect of, any of the following:
(a) Misrepresentation or Breach. Any misrepresentation or breach of
warranty of the Seller, 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 Belch Sisters 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, Year-End Financial Statement,
Interim Financial Statement, or instrument delivered by or on behalf of the
Seller or the Company hereunder.
(b) Taxes. All Taxes of the Seller, of the Belch Sisters, of
Columbus or Quality attributable to any period or partial period ending prior to
or on the Closing Date.
(c) Third Party Claims. Any Claim of a third party including,
without limitation a Claim by the Belch Sisters as officers and/or directors of
the Company described in Section 11.4(d) hereto, arising out of the business or
operations of the Company prior to or on 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) Other. Any other Claims of Purchaser, Columbus, Quality, or
their Affiliates arising hereunder or as a result of the transactions
contemplated hereby.
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(e) 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
to the limitations 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) Officers and Directors. Any Claim for which the Belch Sisters
would have been entitled to indemnification as an officer or director of the
Company prior to Closing.
(e) Other. Any other Claims of Seller arising hereunder or as a
result of the transactions contemplated hereby.
(f) 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
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"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 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 immediately 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 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.
Notwithstanding anything to the contrary in this Agreement, in the event the
Purchaser or any of its Affiliates is the Indemnitee, the Indemnitor and the
Indemnitee shall jointly instruct the Escrow Agent, in writing, to make such
payment and reimbursement from and out of the Escrow Account. 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
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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 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 such counsel for the Indemnitee shall be borne by the Indemnitor.
Section 11.6 Other Claims.
(a) In the event an Indemnitee should have a claim under this
Article XI against an Indemnitor that does not involve a third party Claim, the
Indemnitee shall promptly give notice (the "Indemnitee Notice") and the details
thereof, including copies of all relevant information and documents, to the
Indemnitor within a period of thirty (30) days following the discovery of the
claim by the Indemnitee (the "Claim Notice Period"). The failure by any
Indemnitee to give the Indemnitee Notice within the Claim Notice Period shall
not impair the Indemnitee's rights hereunder except to the extent that the
Indemnitor demonstrates that it has been prejudiced thereby. The Indemnitor will
notify the Indemnitee within a period of thirty (30) days after the receipt of
the Indemnitee Notice by the Indemnitor (the "Indemnity Response Period")
whether the Indemnitor disputes its liability to the Indemnitee under this
Article XI with respect to such Claim. If the Indemnitor notifies the Indemnitee
that it does not dispute the Claim described in such Indemnitee Notice or fails
to notify the Indemnitee within the Indemnity Response Period whether the
Indemnitor disputes the claim described in such Indemnitee Notice, the actual
damages as finally determined will be conclusively deemed to be a liability of
the Indemnitor under this Article XI and the Indemnitor shall pay the amount of
such damages to the Indemnitee on demand. Notwithstanding anything to the
contrary in this Agreement, in the event the Purchaser
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or any of the Affiliates is the Indemnitee, the Indemnitor and Indemnitee shall
jointly give prompt written notice to the Escrow Agent to pay such amount from
and out of the Escrow Funds. If the Indemnitor notifies the Indemnitee within
the Indemnity Response Period that the Indemnitor disputes its liability with
respect to such Claim, the Indemnitor and the Indemnitee will proceed in good
faith to negotiate a resolution of such dispute, and if not resolved through
negotiations within a period of thirty (30) days from the date of such notice or
such longer period as may be agreed to by the parties in writing, such dispute
shall be resolved by arbitration in accordance with Section 11.6(b) hereof.
(b) Any dispute required to be submitted to arbitration pursuant to
this Section 11.6(b) shall be finally and conclusively determined in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(the "Rules of Arbitration") then in effect by the decision of three (3)
arbitrators (the "Board of Arbitration") selected in accordance with the Rules
of Arbitration. The Board of Arbitration shall meet in Columbus, Ohio and shall
render a decision in writing (concurred in by a majority of the members of the
Board of Arbitration) with respect to and stating the amount, if any, which the
Indemnitor is required to pay to the Indemnitee in respect of the claim made by
the Indemnitee. The decision of the Board of Arbitration shall be rendered as
soon as practical following commencement of proceedings with respect thereto.
The Board of Arbitration shall cause its written decision to be delivered to the
Indemnitee and the Indemnitor and, to the extent the Escrow Account is still in
existence, to the Escrow Agent. Any decision made by the Board of Arbitration
shall be final, binding and conclusive on the Indemnitee and the Indemnitor and
entitled to be enforced to the fullest extent permitted by law and entered in
any court of competent jurisdiction.
The parties hereto hereby consent to the jurisdiction of the
foregoing Board of Arbitration and to the jurisdiction of any local, state or
federal court located in the State of Ohio, without regard to its principles of
conflict of laws, for the purpose of enforcing the decision or award of the
Board of Arbitration or otherwise. The parties hereto agree that all service of
process may be made on any such party by personal delivery or by registered or
certified mail addressed to the appropriate party at the address for such party
set forth in this Agreement.
All fees, costs and expenses of the prevailing party in any
arbitration, including, but not limited to, attorneys' fees, shall be paid by
the losing party and shall be awarded to the prevailing party
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as part of the decision of the Board of Arbitration. For purposes hereof, a
"Prevailing Party" shall mean the party which substantially prevails in its
position in arbitration. Each and every arbitration proceeding commenced
pursuant to this Section 11.6(b) shall be consolidated with any arbitration
proceedings simultaneously or previously commenced (but not concluded) under
this Section 11.6(b).
Section 11.7 Continued Liability for Indemnity Claims.
The liability of any Indemnitor hereunder with respect to claims
hereunder shall continue for so long as any claims for indemnification may be
made hereunder pursuant to this Article XI and, with respect to any such
indemnification claims duly and timely made, thereafter until the Indemnitor's
liability therefore is finally determined and satisfied.
Section 11.8 Exclusive Remedy. The parties hereby expressly agree that the
indemnification to be provided under and pursuant to Article XI shall be the
sole and exclusive remedy for any and all Claims by any party hereto against any
other party hereto for matters arising under this Agreement or any transactions
contemplated by this Agreement. There is no right of offset from or against any
of the payments to be made to Gettman under the Noncompetition Agreement or
Consulting Agreement.
Section 11.9 Early Release of Escrow Funds Upon Nonpayment of Gettman
Noncompetition Agreement and Consulting Agreement Obligations Absent Gettman
Default. Notwithstanding anything to the contrary herein or in the Escrow
Agreement provided, to the extent Purchaser and/or the Company shall have failed
to timely pay any amounts due to Gettman under the Noncompetition Agreement
and/or the Consulting Agreement and such failure to pay shall have continued
after written notice thereof by Gettman and a thirty (30) day opportunity to
cure such default, if Gettman is not otherwise in default of those agreements,
then all Escrow Funds remaining in the Escrow Account shall be paid to the Belch
Sisters as in the Escrow Agreement provided, notwithstanding that the Escrow
Period may not have otherwise expired. The parties hereto agree to so instruct
the Escrow Agent on a timely basis.
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ARTICLE XII
GENERAL PROVISIONS
Section 12.1 Amendment and Modification. This Agreement may only be
amended, modified or supplemented by a written agreement signed by all of 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 may only 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 PUCO and the municipality of Columbus Grove, Ohio,
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.
"Belch Sisters" shall have the meaning ascribed to such term in the
preamble of Article II hereof.
"Business Day" shall mean any day that is not a Saturday or Sunday and
that in Columbus Grove, Ohio, or Charlotte, North Carolina, is not a day on
which banking institutions are generally authorized or obligated by Regulation
to close.
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"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, or otherwise, 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
Columbus and Quality.
"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, 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
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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.
"Escrow Account" shall have the meaning ascribed to such term in Section
11.2 hereof.
"Escrow Agreement" shall have the meaning ascribed to such term in Section
11.2 hereof.
"Escrow Funds" shall have the meaning ascribed to such term in Section
11.2 hereof.
"FCC" shall mean the Federal Communications Commission.
"GAAP" shall mean United States generally accepted accounting principles,
consistently applied, as in existence at the date hereof and/or at the Closing
Date.
"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.
"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.
"Interim Financial Statements" shall have the meaning ascribed to such
term in Section 2.9(a) hereof.
"IRC" or the "Code" means the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
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"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 materially interfere with the present use of
the properties or assets subject thereto or affected thereby, do not otherwise
materially 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 Year-End Financial Statements.
"Person" shall mean any corporation, partnership, joint venture,
organization, entity, Authority or natural person, together with any and all
heirs, successors, representatives and assigns thereof.
"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,
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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.
"PUCO" shall mean the Public Utilities Commission of the State of Ohio.
"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.
"Welfare Benefit Plan" shall have the meaning ascribed to such term in
Section 2.19 hereof.
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"Year-End Financial Statements" shall have the meaning ascribed to such
term in Section 2.9(a) 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.
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, Vice Charlotte, NC 28244-2020
Chairman and Executive Vice ATTN: Shirley J. Linn, Esq.
President (704) 333-1200 (Phone)
(704) 344-8150 (Phone) (704) 377-9630 (Fax)
(704) 344-8121 (Fax)
Notices to Seller, to With a Copy to:
the Company, to Belch
Sisters and Gettman
- --------------------- ---------------
Ms. Jane Gettman Thompson Hine & Flory LLP
The Columbus Grove Telephone One Columbus
Company 10 East Broad Street,
112 West Sycamore Street Suite 700
Columbus Grove, OH 45830 Columbus, OH 43215-3435
(419) 659-2111 (Phone) ATTN: J. Raymond
(419) 659-5001 (Fax) Prohaska, Esq.
(614) 469-3309 (Phone)
(614) 469-3361 (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
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without the prior written consent of the other parties hereto, which consent
shall not be unreasonably withheld.
Section 12.6 Governing Law. This Agreement shall be governed by the laws
of the State of Delaware, 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.
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 heirs, successors and permitted assigns.
Section 12.11 Delays or Omissions. Except as otherwise provided herein, 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.
-56-
<PAGE>
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 (which, with
respect to such expenses incurred by or on behalf of the Seller or the Company,
shall be paid by the Seller and not by the Company).
Section 12.14 Time of the Essence. Time is strictly of the essence with
respect to the provisions of this Agreement.
Section 12.15 Injunctive Relief. The parties hereby agree that any remedy
at law for any breach of the provisions of this Agreement shall be inadequate
and that the nonbreaching party shall be entitled to injunctive relief in
addition to any other remedy which such nonbreaching party might have at law or
in equity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-57-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MJD VENTURES, INC.
/s/ Michael J. Stein
-----------------------
By: Michael J. Stein
Title: Vice President
/s/ Jane Gettman (SEAL)
----------------------------
JANE GETTMAN
/s/ Jane Gettman (SEAL)
----------------------------
JANE GETTMAN, Trustee
/s/ Earlene Winner (SEAL)
----------------------------
EARLENE WINNER
THE COLUMBUS GROVE TELEPHONE COMPANY
/s/ Jane Gettman
By: Jane Gettman
Title: Secretary & Treasurer
-58-
<PAGE>
Exhibit A
Other Stockholders
J. Earl Belch (7 Shares) Thomas L. Gettman (4 Shares)
126 S. High Street 15331 Old SR 65
Columbus Grove, OH 45830 Ottawa, OH 45875
Thomas J. Basinger (4 Shares) Joseph D. Basinger (1 Share)
167 Hillcrest 1033 Royal Palm Drive
Bluffton, OH 45817 Barefoot Bay, FL 32976
Jack Callahan (2 Shares) Ruth M. Ewing (1 Share)
409 W. Sycamore Street 1401 Fostoria Road
Columbus Grove, OH 45830 Findlay, OH 45840
Terry Callahan (2 Shares) Evelyn L. Hauman (1 Share)
309 West Street 863 Fox Run Road
Columbus Grove, OH 45830 Findlay, OH 45840
Mary Hooper (1 Share)
__________________________
Lima, OH
<PAGE>
Exhibit 7.7
Opinion of Seller's Counsel
<PAGE>
[LETTERHEAD OF THOMPSON HINE & FLORY LLP]
_____________, 1998
MJD Ventures, Inc.
521 East Morehead Street
Suite 250
Charlotte, NC 28202
[Lender to be determined.]
- --------------------------------
- --------------------------------
- --------------------------------
Re: The Columbus Grove Telephone Company and Shareholders
Ladies and Gentlemen:
We have served as counsel to The Columbus Grove Telephone Company and to
its sole subsidiary Quality One Technologies, Inc.(collectively the "Company"),
each an Ohio corporation, in connection with the preparation, execution and
delivery of the Stock Purchase Agreement dated as of November ____, 1998 (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 The Columbus Grove Telephone Company (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.
<PAGE>
MJD Ventures, Inc.
- ---------------------
_______________, 1998
Page 2
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 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 Ohio;
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:
<PAGE>
MJD Ventures, Inc.
- ---------------------
_______________, 1998
Page 3
(a) The Columbus Grove Telephone Company and Quality One
Technologies, Inc. is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Ohio 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 all residents of Ohio or Florida, as shown on Exhibit A
to the Agreement.
(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 The Columbus Grove Telephone
Company consists of 500 shares of $100.00 par value common stock, of which
322 shares are issued and outstanding (the "Columbus Stock"). Each
Shareholder is the lawful owner of the number of shares reported in the
Agreement or in Exhibit A to the Agreement. The Columbus Grove Telephone
Company has no other class of stock authorized or issued and outstanding.
All of the issued and outstanding shares of the Columbus 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 Columbus Stock will pass good and marketable
title to all of the Columbus 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 Columbus 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
<PAGE>
MJD Ventures, Inc.
- ---------------------
_______________, 1998
Page 4
preemptive rights. No shares of capital stock of the Company are held in
the treasury of the Company.
(d) 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:
[Jim, we do want an opinion on the outstanding capital stock. You
may rely on your review of the stock record books.]
Issued and
Authorized Outstanding
Corporation Capital Stock Capital Stock
----------- ------------- -------------
Quality One Technolo-
gies, Inc. 850 shares, 850 shares issued
no par value, to The Columbus
stock Grove Telephone
Company on
___________, 19___
(e) 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 Columbus
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 Columbus Stock; or
(iv) violate any law or regulation of any jurisdiction relating to the
Company or the Columbus Stock or other securities, property or business of
the Company, assuming all required regulatory approvals
<PAGE>
MJD Ventures, Inc.
- ---------------------
_______________, 1998
Page 5
have been obtained in connection with the transactions contemplated by the
Agreement.
(f) 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 Columbus 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.
(g) To our knowledge, 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.
(h) The Shareholders and the Company have given all notices to and
have obtained from all local, state and federal regulatory authorities any
and all final and unappealable approvals, consents, permits and
authorizations required in order to consummate the transactions
contemplated in the Agreement. No such approvals are needed to effect a
change of control of Quality's cable television business.
(i) Upon completion of the transactions contemplated by the
Agreement, no Person, other than the Purchaser, shall have any ownership
or other right in and/or to the Columbus Stock.
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,
<PAGE>
MJD Ventures, Inc.
- ---------------------
_______________, 1998
Page 6
THOMPSON HINE & FLORY LLP
By:_________________________________
Name:______________________________
Title:_____________________________
<PAGE>
Exhibit 7.8
NONCOMPETITION AGREEMENT
<PAGE>
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (the "Agreement") is made effective as of
the _________ day of ____________, 1998 (the "Effective Date"), by and between
JANE GETTMAN, a resident of Ohio ("Gettman"); THE COLUMBUS GROVE TELEPHONE
COMPANY, an Ohio corporation ("Columbus"), QUALITY ONE TECHNOLOGIES, INC., an
Ohio corporation ("Quality", and collectively with Columbus, 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
Gettman, the Company and MJD, among others, dated as of November ____, 1998 (the
"Purchase Agreement"), MJD is desirous of purchasing all of the outstanding
capital stock of the Company; and
WHEREAS, Gettman is a principal shareholder of the Company, and Gettman'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 Gettman'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, Gettman hereby undertakes and
agrees as follows:
1. Gettman 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 Gettman
in the capacity of director, officer, employee, agent, consultant, partner
or stockholder (except that Gettman shall be permitted to acquire a stock
interest in a corporation provided such stock is publicly traded and the
stock so acquired is not
<PAGE>
more than five percent (5%) of the total outstanding shares of such
corporation) and shall further apply to actions taken by Gettman through
Earlene Winner or J. Earl Belch or Thomas Gettman or any other relative or
friend of hers, 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 (exclusive of
its legal and accounting advisers, Thompson Hine & Flory LLP and Pry CPA
Services, Inc.)
(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 Columbus or Quality, including but not limited to the
Counties of Putnam and Allen, as defined by the Public Utilities
Commission of the State of Ohio or the applicable municipality, and any
and all locations within a radius of fifty (50) miles of the outermost
boundary thereof.
(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 or cable television customer of the
Company (i.e., any Person at a location within the Restricted Territory):
(1) Wireline or wireless telephone service;
(2) Paging;
(3) Cellular Resale;
(4) Paging Resale;
(5) Internet Access;
(6) PCS;
-2-
<PAGE>
(7) Voice Mail;
(8) Fax Store & Forward;
(9) Directory;
(10) Pre-Paid Calling Cards;
(11) Toll Resale;
(12) Cable Television (wired and/or wireless);
(13) Local Dial Tone; and
(14) Optional Wire Maintenance.
2. Notwithstanding anything to the contrary herein provided, Gettman 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) Computer sales and services, whether within or
outside the Restricted Territory;
(3) Non-telecommunications sales and services
within the Restricted Territory; and
(4) Telecommunications-related services outside the
Restricted Territory.
3. Gettman 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. Nothing contained in this Agreement shall in any way restrict or
impair Gettman's right to use, disclose or otherwise deal with any confidential
information which: (a) at the time of disclosure is generally available to the
public or thereafter becomes generally available to the public through no act of
Gettman in violation of this Agreement, or (b) is independently made available
to Gettman by third parties having a right to disclose such information.
-3-
<PAGE>
4. As consideration for the foregoing restrictions upon competition (in
addition to MJD's execution of the Purchase Agreement), MJD shall pay Gettman
the principal sum of Nine Hundred Thousand and no/100 Dollars ($900,000.00) (the
"Noncompete Payment"). The Noncompete Payment shall be payable in twenty (20)
equal quarterly installments of Forty-Five Thousand and no/100 Dollars
($45,000.00) 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 total amount of the Noncompete Payment has been
paid in full to Gettman or her heirs or assigns, 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. In the event of any breach by Gettman 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. Gettman's death shall not be deemed a
breach of this Agreement. There is no right of offset against the payments to be
made to Gettman hereunder for any of the indemnification obligations set forth
in Article XI of the Purchase Agreement.
6. In the event of nonpayment of any of the amounts set forth in Paragraph
4 hereof, after written notice thereof by Gettman and a thirty (30) day
opportunity to cure such default, if Gettman is not otherwise in default of this
Agreement, all obligations and liabilities of Gettman hereunder shall cease and
terminate until such time as payment hereunder shall have recommenced and been
brought current.
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.
-4-
<PAGE>
8. Gettman 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 Delaware without regard to its principles of conflict of
laws. This Agreement shall inure to the benefit of the Company, MJD and Gettman
and their respective heirs, successors and assigns. The restrictive covenants
contained herein shall apply to all actions taken by Gettman or any person or
entity directly or indirectly controlling, controlled by or affiliated with
Gettman. The terms hereof may not be modified or terminated except by a writing
signed by the Company, MJD and Gettman.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
-5-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective
as of the date first set forth above.
(SEAL)
---------------------------
JANE GETTMAN
THE COLUMBUS GROVE TELEPHONE COMPANY
ATTEST:
_____________________________ _____________________________
By: _________________________ By: _________________________
Title: ______________________ Title: ______________________
(Corporate Seal)
QUALITY ONE TECHNOLOGIES, INC.
ATTEST:
_____________________________ _____________________________
By: _________________________ By: _________________________
Title: ______________________ Title: ______________________
(Corporate Seal)
MJD VENTURES, INC.
ATTEST:
_____________________________ _____________________________
By: _________________________ By: _________________________
Title: ______________________ Title: ______________________
(Corporate Seal)
-6-
<PAGE>
Exhibit 7.9
CONSULTING AGREEMENT
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made effective as of the
_________ day of ____________, 1998 (the "Effective Date"), by and between JANE
GETTMAN, a resident of Ohio ("Gettman"); THE COLUMBUS GROVE TELEPHONE COMPANY,
an Ohio corporation ("Columbus") and MJD VENTURES, INC. , a Delaware corporation
("MJD").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is an Ohio corporation, and with its wholly owned
subsidiary, Quality, is engaged in, among other activities, the ownership and
operation of a telephone company that provides wire line and cable television
telecommunications services in the exchange of Columbus Grove, Ohio (the
"Business"); and
WHEREAS, pursuant to that certain Stock Purchase Agreement by and among
Gettman, the Company and MJD, among others, dated as of November ____, 1998 (the
"Purchase Agreement"), MJD is desirous of purchasing all of the outstanding
capital stock of the Company; and
WHEREAS, Consultant possesses valuable knowledge and experience regarding
the business affairs of the Company and of the regulatory climate of the
telecommunications industry in general; 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
to assist the Company with its regulatory and legislative needs, 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. Subject to
the provisions of the following paragraph, Consultant agrees to devote such time
and energy as may be necessary to perform the duties and responsibilities
requested by the Company.
<PAGE>
The parties contemplate that the majority of the Consultant's services
shall pertain to assisting the Company with its regulatory and legislative
needs, and that the Consultant shall expend an average of no more than
twenty-five (25) hours per month providing such consulting services.
2. Term. The term of this Agreement shall be for a period of five (5)
years commencing as of the date hereof ("Term").
3. Compensation. For all services rendered by Consultant under this
Agreement, the Company shall pay Consultant an annualized fee in the amount of
Sixty Thousand and No/100 Dollars ($60,000.00) (the "Consulting Payment")
payable in equal monthly payments of Five Thousand Dollars ($5,000.00) each.
There is no right of offset against the payments to be paid to Consultant
hereunder for any of the indemnification obligations set forth in Article XI of
the Purchase Agreement. Notwithstanding anything to the contrary herein
provided, in the event of nonpayment by Company of any of the amounts set forth
in this Paragraph 3, after written notice thereof by Consultant and a thirty
(30) day opportunity to cure such default, if Gettman is not otherwise in
default of this Agreement, all obligations of Gettman hereunder shall cease and
terminate until such time as payment hereunder shall have recommenced and been
brought current.
4. Expenses. The Company shall reimburse the Consultant for reasonable
out-of-pocket business expenses incurred in the course of the Consultant's
performance of her duties hereunder, upon presentation by the Consultant to the
Company of such documentation as is reasonably requested by the Company to
enable it to comply with applicable tax regulations.
5. 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 she 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,
-2-
<PAGE>
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 herself she deems necessary. Consultant understands that
she shall not be entitled to receive any health insurance benefits,
retirement benefits or other benefits available to employees of the
Company.
6. 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.
7. 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.
8. 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.
9. Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware without regard to
its principles of conflict of laws.
10. 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: Jane Gettman
15331 Old SR 65
Ottawa, OH 45875
-3-
<PAGE>
as to the Company: The Columbus Grove Tele-
phone Company
112 West Sycamore Street
Columbus Grove, OH 45830
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 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)
------------------------------
JANE GETTMAN
THE COLUMBUS GROVE 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>
UNDERWOOD KINSEY WARREN & TUCKER, P.A.
ATTORNEYS AT LAW
CHARLOTTE PLAZA BUILDING, SUITE 2020
201 SOUTH COLLEGE STREET
RUSSELL M. BLACK CHARLOTTE, NORTH CAROLINA 28244-2020
KIMBERLYE FAYSSOUX CORNELSON
RICHARD L. FARLEY
C. RALPH KINSEY, JR. TELEPHONE
SHIRLEY J. LINN 704-333-1200
JOHN H. NORTHEY III
FRANCIS M. PINCKNEY III
CARLTON A. SHANNON, JR. FACSIMILE
WILLIAM L. SITTON, JR. 704-377-9630
SUSAN L. SOWELL
ROBERT B. TUCKER, JR.
WILLIAM E. UNDERWOOD, JR.
JOSEPH WARREN III
__________________, 1998
Ms. Jane Gettman
Ms. Earlene Winner
c/o The Columbus Grove
Telephone Company
112 West Sycamore Street
Columbus Grove, OH 45830
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 The Columbus Grove Telephone Company (the "Company") from
Jane Gettman, Earlene Winner and the Other Stockholders ("Seller"), pursuant to
a Stock Purchase Agreement entered into as of November ___, 1998 (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
<PAGE>
Ms. Jane Gettman
Ms. Earlene Winner
c/o The Columbus Grove
Telephone Company
_______________, 1998
Page 2
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 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 Purchase Agreement.
2. The execution and delivery of the Purchase Agreement was duly
authorized and approved by the Board of Directors of MJD. The Purchase
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Ms. Jane Gettman
Ms. Earlene Winner
c/o The Columbus Grove
Telephone Company
_______________, 1998
Page 3
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 knowledge, MJD has given all notices to and has obtained from
all state and federal regulatory authorities 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.
<PAGE>
Ms. Jane Gettman
Ms. Earlene Winner
c/o The Columbus Grove
Telephone Company
_______________, 1998
Page 4
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 11.2
Escrow Agreement
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made as of
______________, 1998, between JANE GETTMAN, a resident of the State of Ohio
("Gettman"), EARLENE WINNER, a resident of the State of Ohio ("Winner", and
collectively with Gettman, the "Belch Sisters"), MJD SERVICES CORP., a Delaware
corporation ("Purchaser") and KeyCorp. (the "Escrow Agent").
STATEMENT OF PURPOSE
On or about November ___, 1998, the Belch Sisters 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, the Belch
Sisters and Purchaser agreed that One Million Dollars ($1,000,000) (the "Escrow
Funds") of the total purchase price otherwise attributable to the Belch Sisters
would be deposited with Escrow Agent as the exclusive source of recovery by
Purchaser for any breach of the Purchase Agreement as set forth therein 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 the
Shares 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.
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.
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3. Purposes of Escrow. The Escrow Funds shall be used solely for the
purposes and in the manner set forth in Article XI of the Purchase Agreement.
The Escrow Funds shall not constitute an asset of the Belch Sisters until the
distribution thereof to the Belch Sisters 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 April 30, 1999 (if the Closing contemplated by the Purchase Agreement (the
"Closing") shall have occurred at any time in 1998) or the date which is seven
(7) months after Closing (if Closing shall have occurred at any time in 1999),
except that the Escrow Period shall be automatically extended as necessary to
provide for the disposition of any Claims filed by Purchaser with the Escrow
Agent during such 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 Article XI of the Purchase
Agreement, Purchaser shall deliver written notice to the Escrow Agent and
the Belch Sisters, stating the factual basis for, and the amount of, such
entitlement ("Claim"). Within thirty (30) days following such delivery of
the Claim, the Belch Sisters 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").
(b) In the event that the Belch Sisters fail 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 the
Belch Sisters 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 the Belch Sisters have not denied, and (ii)
within sixty (60) days of receipt of such Denial, file an action in
interpleader with any Ohio 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 the Belch Sisters and the Purchaser as to the
disposition of the denied portion of the Claim
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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. Purchaser and the Belch Sisters agree to
thereafter apply to such court for an order submitting the matter to
arbitration pursuant to Section 11.6(b) of the Purchase Agreement.
(d) The Escrow Agent shall equally divide and distribute any portion
of the Escrow Funds remaining in the Escrow Agent's possession immediately
upon the expiration of the Escrow Period in equal amounts to each of the
Belch Sisters, 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 the Belch Sisters as provided in a written joint instruction
received by the Escrow Agent from the Belch Sisters and the Purchaser and
signed by all 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 the Escrow Agent from all obligations and responsibility
with respect to the Escrow Funds to which such order or judgment 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 the Belch Sisters and
the Purchaser shall mutually agree in writing.
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.
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9. Performance of Escrow Agent.
(a) There are 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 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) The Belch Sisters 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. The
Belch Sisters on the one hand and the Purchaser on the other hand agree to split
equally any amounts due under this Section 9(b).
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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 _________________________________ Dollars ($_______) to be paid equally by
each of Purchaser on the one hand and the Belch Sisters on the other hand upon
execution of this Escrow Agreement and shall receive 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 each of Purchaser on the one hand and the Belch
Sisters on the other hand.
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 Ohio court in the manner provided in Section 5 hereof, or upon the
earlier appointment, with the approval of the Belch Sisters 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 the Belch Sisters 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.
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 the Belch Sisters and the Purchaser. For all purposes
hereunder, the Belch Sisters shall be required to act with unanimity, and
Gettman shall act as spokeswoman for the Belch Sisters for purposes of all
notices, communications,
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decisions and determinations. 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:
If to the Belch Sisters:
Jane Gettman and Earlene Winner
15331 Old SR 65
Ottawa, OH 45875
If to Purchaser:
MJD Ventures, Inc.
521 East Morehead Street, Suite 520
Charlotte, NC 28202
ATTN: Mr. Eugene B. Johnson, Vice Chairman
and Executive Vice President
If to Escrow Agent:
KeyCorp.
----------------------------------------
----------------------------------------
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Any notice sent by overnight messenger or hand delivery shall be deemed
made on the date received, and any notice sent by 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 Delaware without regard to
its principles of conflicts of law.
15. Headings. The headings in this Escrow Agreement are inserted for
convenience and identification 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
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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 heirs, successors and
assigns, 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 the Belch Sisters 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)
JANE GETTMAN
_______________________________(SEAL)
EARLENE WINNER
MJD VENTURES, INC.
__________________________________
By: ______________________________
Its: _____________________________
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Escrow Agent
KEYCORP.
By: _______________________________
Its: ______________________________
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Schedule 3.3
Consents and Authorizations of Purchaser
Approval of the PUCO to the change of control and reorganizations of
Columbus and/or Quality contemplated by this transaction.
FCC approval to transfer of control of certain radio and walkie talkie
licenses.
Local/municipal approval of change of control of telephone and cable
television operations, as may be necessary.
<PAGE>
Exhibit 2.16
STOCK PURCHASE AGREEMENT
among
MJD VENTURES, INC.,
ALBERT LEONETTI AND FRANK LEONETTI, III, CO-TRUSTEES
OF THE FRANK LEONETTI, JR. TRUST DATED JANUARY 13, 1992,
ALBERT LEONETTI, individually,
ANN POKORNY, TRUSTEE UNDER DECLARATION
OF TRUST DATED OCTOBER 26, 1989,
DONALD POKORNY, TRUSTEE UNDER DECLARATION
OF TRUST DATED OCTOBER 26, 1989,
and
THE ORWELL TELEPHONE COMPANY
dated as of June 17, 1999
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of this Agreement but is attached for
convenience only.
ARTICLE I
PURCHASE/REDEMPTION OF STOCK...................................................2
Section 1.1 Purchase and Sale........................................2
Section 1.2 Purchase Price...........................................2
Section 1.3 Redemption. .............................................2
(a) Generally. ..............................................2
(b) Transfer.................................................3
(c) No Other Assets. ........................................3
Section 1.4 Zenz Transaction. .......................................3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS..................................3
Section 2.1 Corporate Organization...................................4
Section 2.2 Authorization............................................4
Section 2.3 No Violation.............................................4
Section 2.4 Subsidiaries and Investments.............................5
Section 2.5 Stock Record Book........................................5
Section 2.6 Corporate Books..........................................6
Section 2.7 Title to Stock...........................................6
Section 2.8 Options and Rights.......................................7
Section 2.9 Financial Statements.....................................7
(a) Generally. ..............................................7
(b) Absence of Change. ......................................7
Section 2.10 Employees................................................8
Section 2.11 Absence of Certain Changes...............................9
Section 2.12 Contracts...............................................10
(a) Generally. .............................................10
(b) Compliance .............................................11
Section 2.13 True and Complete Copies................................12
Section 2.14 Title and Related Matters...............................12
(a) Owned Property..........................................12
(b) Leased Property. .......................................12
(c) Compliance with Regulations. ...........................13
(d) Utilities. .............................................13
(e) Condition. .............................................13
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Section 2.15 Litigation..............................................14
Section 2.16 Tax Matters.............................................14
(a) Generally. .............................................14
(b) Good Faith .............................................15
(c) Claims..................................................15
(d) Course of Business......................................15
(e) Withholdings............................................15
(f) Partnerships............................................15
(g) Accounting Method Adjustments...........................15
(h) Tax Exemptions..........................................16
(i) Tax Return Reviews......................................16
(j) Power of Attorney. .....................................16
(k) True and Complete Copies................................16
Section 2.17 Bank and Brokerage Accounts.............................16
Section 2.18 Compliance with Applicable Laws, Regulations and Orders.16
Section 2.19 Employee Benefit Plans..................................16
Section 2.20 Intellectual Property...................................20
Section 2.21 Environmental Matters...................................20
(a) Generally. .............................................20
(b) Property................................................20
(c) Transportation .........................................21
(d) Notification of Release. ...............................21
(e) Liens. .................................................21
(f) Site Assessments .......................................21
Section 2.22 Capital Expenditures and Investments....................22
Section 2.23 Dealings with Affiliates................................22
Section 2.24 Insurance...............................................22
Section 2.25 Commissions.............................................22
Section 2.26 Permits and Reports.....................................23
(a) Generally. .............................................23
(b) Cable Television Business. .............................24
Section 2.27 Absence of Undisclosed Liabilities......................25
Section 2.28 Year 2000 Compliance....................................25
Section 2.29 Disclosure..............................................26
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...............................26
Section 3.1 Corporate Organization..................................26
Section 3.2 Authorization...........................................26
Section 3.3 No Violation............................................27
Section 3.4 Investment Intent.......................................27
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ARTICLE IV
COVENANTS OF THE SELLER AND THE COMPANY.......................................27
Section 4.1 Regular Course of Business..............................27
(a) Generally. .............................................27
(b) Compensation ...........................................28
(c) Insurance. .............................................28
(d) Claims..................................................28
(e) Supplement .............................................28
Section 4.2 Amendments..............................................28
Section 4.3 Capital Changes.........................................28
Section 4.4 Dividends...............................................28
Section 4.5 Capital Expenditures....................................29
Section 4.6 Borrowing...............................................29
Section 4.7 Property................................................29
Section 4.8 Other Commitments.......................................29
Section 4.9 Interim Financial Information...........................29
Section 4.10 Consents and Authorizations.............................29
(a) Generally. .............................................29
(b) Primary Responsibility .................................29
Section 4.11 Access..................................................30
Section 4.12 Notice of Transfer......................................30
Section 4.13 Payment of Stamp Tax....................................30
Section 4.14 Disclosure..............................................30
Section 4.15 Cooperation with Purchaser. ............................30
ARTICLE V
COVENANTS OF THE PURCHASER....................................................31
Section 5.1 Consents and Authorizations.............................31
(a) Generally. .............................................31
(b) Primary Responsibility .................................31
Section 5.2 Employees...............................................31
Section 5.3 Extension of Purchaser Plan Coverage
to Company Employees. ...........................31
ARTICLE VI
OTHER AGREEMENTS..............................................................32
Section 6.1 Agreement to Defend.....................................32
Section 6.2 Further Assurances......................................32
Section 6.3 Consents................................................32
Section 6.4 No Solicitation or Negotiation..........................33
Section 6.5 No Termination of the Obligations by
Subsequent Dissolution...........................33
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Section 6.6 Public Announcements....................................33
Section 6.7 Records and Information.................................34
(a) Retention of Records....................................34
(b) Access to Information. .................................34
(c) Provisions of Corporate Records. .......................34
(d) Witnesses. .............................................34
Section 6.8 Insurance Policies and Claims Administration............35
(a) Insurance Coverage Prior to the Closing
Date....................................................35
(b) Insurance Coverage After the Closing Date. .............35
Section 6.9 Other Tax Matters.......................................35
(a) Tax Returns. ...........................................35
(b) Information. ...........................................36
Section 6.10 Profit-Sharing Plan/COBRA Coverage. ....................36
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER................................37
Section 7.1 Representations and Warranties..........................37
Section 7.2 Consents and Approvals..................................38
Section 7.3 No Material Adverse Change..............................38
Section 7.4 No Proceeding or Litigation.............................38
Section 7.5 Secretary's Certificate.................................38
Section 7.6 Certificates of Good Standing...........................38
Section 7.7 Opinion of Seller's Counsel.............................39
Section 7.8 Noncompetition Agreements ..............................39
Section 7.9 Employment Agreement. ..................................39
Section 7.10 Resignations............................................39
Section 7.11 Other Documents.........................................39
Section 7.12 Liens...................................................39
Section 7.13 Delivery of Minute Books. ..............................39
Section 7.14 Delivery of Financial Statements........................39
Section 7.15 Satisfactory Investigation. ............................39
Section 7.16 Cable Television Franchise Agreements
Renewal. .......................................40
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLER...................................41
Section 8.1 Representations and Warranties..........................41
Section 8.2 Consents and Approvals..................................41
Section 8.3 No Proceeding or Litigation.............................41
Section 8.4 Secretary's Certificate.................................41
Section 8.5 Opinion of Purchaser's Counsel..........................42
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ARTICLE IX
CLOSING.......................................................................42
Section 9.1 Closing.................................................42
Section 9.2 Closing Date Payment and Receipt of
Shares...........................................42
ARTICLE X
TERMINATION AND ABANDONMENT...................................................42
Section 10.1 Methods of Termination..................................42
(a) Mutual Consent .........................................43
(b) Seller's Failure to Perform.............................43
(c) Purchaser's Failure to Perform .........................43
(d) Failure to Close by December 31, 1999...................43
(e) Material Adverse Change. ...............................43
(f) Unsatisfactory Investigation............................43
(g) Remedies................................................44
Section 10.2 Procedure Upon Termination..............................44
(a) Return of Records. .....................................44
(b) Confidentiality. .......................................44
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION............................................44
Section 11.1 Survival; Limitations...................................44
Section 11.2 Escrow of Liquid Assets.................................45
Section 11.3 Indemnification by the Seller...........................45
(a) Misrepresentation or Breach. ...........................45
(b) Taxes. .................................................45
(c) Other Claims ...........................................46
(d) Related Expenses .......................................46
Section 11.4 Indemnification by the Purchaser........................46
(a) Misrepresentation or Breach. ...........................46
(b) Taxes. .................................................46
(c) Other Claims ...........................................46
(d) Related Expenses .......................................47
Section 11.5 Third Party Claims......................................47
(a) Generally. .............................................47
(b) Counsel. ...............................................48
Section 11.6 Other Claims............................................48
Section 11.7 Continued Liability for Indemnity Claims................51
Section 11.8 Basket Amount...........................................51
(a) Indemnification by the Seller. .........................51
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(b) Indemnification by the Purchaser .......................51
(c) Aggregation. ...........................................51
Section 11.9 Maximum Liability ......................................52
ARTICLE XII
GENERAL PROVISIONS............................................................52
Section 12.1 Amendment and Modification..............................52
Section 12.2 Waiver..................................................52
Section 12.3 Certain Definitions.....................................52
Section 12.4 Notices.................................................57
Section 12.5 Assignment..............................................57
Section 12.6 Governing Law...........................................58
Section 12.7 Counterparts............................................58
Section 12.8 Headings................................................58
Section 12.9 Entire Agreement........................................58
Section 12.10 No Benefit..............................................58
Section 12.11 Delays or Omissions.....................................58
Section 12.12 Severability............................................59
Section 12.13 Expenses................................................59
(a) Generally. .............................................59
(b) Seller's Payment of Purchaser's Expenses. ..............59
(c) Purchaser's Payment of Certain of Seller's
Expenses................................................59
Section 12.14 Time of the Essence.....................................59
Section 12.15 Injunctive Relief.......................................59
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SCHEDULES
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1.3 Zenz Transaction Assets, Zenz Transaction
Liabilities, Personal Items
2.3 No Violations
2.4 Subsidiaries and Investments
2.5 Capital Stock
2.6 Corporate Books
2.7 List of Shareholders/No Liens on Shares
2.9 Changes Since December 31, 1998
2.10 Employees As of April 30, 1999
2.11 Certain Changes
2.12 Contracts
2.14(a) Owned Property
2.14(b) Leased Property
2.14(c) Compliance with Regulations
2.14(e) Condition
2.15 Litigation
2.16 Tax Matters
2.17 Bank and Brokerage Accounts
2.18 Compliance with Applicable Laws, Regulations and Orders
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
5.3 Extension of Purchaser Plan Coverage to Company
Employees
EXHIBITS
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7.7 Opinion of Seller's Counsel
7.8 Noncompetition Agreements
7.9 Employment Agreements
8.5 Opinion of Purchaser's Counsel
11.2 Escrow Agreement
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AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
the 17th day of June, 1999, among MJD VENTURES, INC., a Delaware corporation
(the "Purchaser"), ALBERT LEONETTI AND FRANK LEONETTI, III, CO-TRUSTEES OF THE
FRANK LEONETTI, JR. TRUST DATED JANUARY 13, 1992, an Ohio sitused trust("F.
LEONETTI TRUST"), ALBERT LEONETTI, individually, an Ohio resident ("A.
LEONETTI"), ANN POKORNY, TRUSTEE UNDER DECLARATION OF TRUST DATED OCTOBER 26,
1989, an Ohio sitused trust ("A. Pokorny Trust"), DONALD POKORNY, TRUSTEE UNDER
DECLARATION OF TRUST DATED OCTOBER 26, 1989, an Ohio sitused trust ("D. Pokorny
Trust"), (the F. Leonetti Trust, A. Leonetti, the A. Pokorny Trust and the D.
Pokorny Trust collectively referred to hereinafter as "Seller" or "Sellers"),
and THE ORWELL TELEPHONE COMPANY, an Ohio corporation ("Orwell" or the
"Company").
RECITALS
WHEREAS, the F. Leonetti Trust owns 1,623 shares of common stock, $0.20
par value of the Company, A. Leonetti owns 1,623 shares of common stock of the
Company, the A. Pokorny Trust owns 812 shares of common stock of the Company,
and the D. Pokorny Trust owns 811 shares of common stock of the Company, the
4,869 shares constituting all of the issued and outstanding shares of capital
stock of the Company (the "Company Capital Stock");
WHEREAS, the Company owns 500 shares of common stock, $1.00 par value,
of Orwell Communications, Inc. ("Communications"), constituting all of the
issued and outstanding shares of capital stock of Communications (the
"Communications Capital Stock") (any and all shares, options, warrants, rights
and interests, legal or equitable, in or with respect to the Company Capital
Stock and the Communications Capital Stock hereinafter referred to collectively
as the "Shares");
WHEREAS, Orwell is an operating telephone company that provides wireline
telecommunications services (the "Orwell Business") in the nine (9) exchanges in
the seven (7) Ohio counties set forth on Schedule 2.26 hereto, with at least
6600 access lines (the "Exchange" or the "Exchanges") and Communications owns
and operates a cable television franchise and internet business in the five (5)
counties in Ohio set forth on Schedule 2.26 hereto and owns a twenty-five
percent (25%) interest in Ohio RSA #3 Limited Partnership, the cellular
partnership in Ashtabula County, Ohio (collectively the businesses of
Communications are hereinafter referred to as the "Communications
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Business") (collectively the businesses of the Company and Communications 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, certain of the Seller's shares of Company Capital Stock;
WHEREAS, the parties hereto desire to have the Company redeem from the
Seller certain of the Seller's shares of Company Capital Stock, so that the
purchase and sale described in the previous clause, coupled with the redemption
described in this clause, will completely terminate the Seller's ownership
interest in the Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE/REDEMPTION 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,
4,797.4782 shares of Company Capital Stock.
Section 1.2 Purchase Price. In consideration for the conveyance of the
4,797.4782 shares of Company Capital Stock, the Purchaser shall pay to the
Seller on the Closing Date, as provided in Section 9.2 hereof, an amount per
share of $8,686.855 for each of the 4,797.4782 shares of the Company Capital
Stock (the "Purchase Price"), aggregating a total Purchase Price for such shares
of Company Capital Stock of Forty-One Million Six Hundred Seventy-Five Thousand
Dollars ($41,675,000). Schedule 2.7 hereto sets forth the number of shares of
Company Capital Stock each Seller shall sell to the Purchaser and the dollar
amount the Purchaser shall pay therefor.
Section 1.3 Redemption.
(a) Generally. At the Closing Date, on the terms and subject to
the conditions set forth in this Agreement, and contemporaneous with the
purchase and sale of shares of Company Capital Stock as provided in Sections 1.1
and 1.2 hereof, the Seller agrees to
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sell to the Company, and the Company agrees to redeem from the Seller, 71.5218
shares of Company Capital Stock, in consideration for the transfer to the Seller
of those particular assets set forth on Schedule 1.3 hereto (the "Zenz
Transaction Assets"). Further, Seller shall assume any and all liabilities set
forth on Schedule 1.3 hereto (the "Zenz Transaction Liabilities"). Schedule 2.7
hereto sets forth the number of shares of Company Capital Stock the Company
shall redeem from each Seller and Schedule 1.3 hereto sets forth the Zenz
Transaction Assets and Zenz Transaction Liabilities that are to be transferred
and/or assigned to each Seller. (b) Transfer. Purchaser agrees that it shall
cause the Company to execute, and Seller agrees to execute, any and all bills of
sale, deeds, assignments and/or agreements as may be necessary to transfer title
to the Zenz Transaction Assets to Seller and to assign and/or transfer the Zenz
Transaction Liabilities to Seller. In particular, the Company's transfer of all
of its interest in the Local Multipoint Distribution Service (LMDS) licenses, B
blocks for Ashtabula 021B, Lima 255B and Sandusky 403B to Seller shall be in
full compliance with all applicable Contracts, agreements, Regulations,
statutes, and ordinances applicable to the ownership, transfer or other
disposition thereof and Purchaser shall be provided with written evidence
thereof to the satisfaction of Purchaser and its counsel.
(c) No Other Assets. The parties hereto further agree that except
as described in this Section 1.3 and/or except for compensation, dividends and
legal fee retainers described in Schedules 2.4, 2.10, 2.23 and 4.14 hereto, 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, 1998 through the Closing Date.
Section 1.4 Zenz Transaction. The parties to this Agreement intend that
the stock redemption provided for in Section 1.3 hereof be characterized for
income tax purposes as a so-called "Zenz" redemption and termination of interest
under Section 302(b)(3) of the Code. To this end, the parties acknowledge and
agree that: (i) the Company's redemption of shares of Company Capital Stock as
provided for in Section 1.3 hereof is part of an integrated plan which includes
the simultaneous sale of the remainder of the Seller's shares of Company Capital
Stock to the Purchaser, (ii) the redemption of shares of Company Capital Stock
as provided in Section 1.3 hereof, coupled with the simultaneous sale of the
remainder of Seller's shares as provided for in Sections 1.1 and 1.2 hereof,
will completely extinguish Seller's interest in the Company; and (iii) when the
stock redemption and
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simultaneous sale of the remainder of Seller's shares are concluded, Seller will
not retain any beneficial or proprietary interest whatever in the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Sellers 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 any or all of the Sellers and the Company), with respect to
each of Orwell, Communications 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 Orwell, Communications or any of their subsidiaries or
affiliates then the Sellers 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 Ohio or an Ohio sitused
trust. 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. Seller
and the Company either have delivered to the Purchaser true, complete and
correct copies of the Company's charter and by-laws as presently in effect, or
will provide the Purchaser with access to such items as provided in Section 4.11
hereof following the signing of this Agreement.
Section 2.2 Authorization. The Seller and the Company each 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
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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
Company Capital Stock and the certificates evidencing the Company Capital Stock
to the Purchaser and the Company, as the case may be, free and clear of all
Liens as provided for herein, thereby also having power and authority to deliver
the Communications Capital Stock, free and clear of all Liens 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
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 on
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, nor shall the transactions
contemplated by this Agreement result in a violation of, or require any
authorization, consent, approval, exemption or other action by or notice to 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
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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 subsidiaries or
investments 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
or director of any such investment entity, except as set forth on Schedule 2.6.
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,
1996.
Section 2.5 Stock Record Book. The stock record books of the Company
and/or of Communications are complete and correct in all material respects. No
shares of capital stock of the Company and/or of Communications are currently
reserved for issuance for any purpose or upon the occurrence of any event or
condition. The Company Capital Stock constitutes all of the outstanding capital
stock of the Company and the Seller owns all outstanding capital stock of the
Company. Orwell is the true and lawful owner of all of the outstanding capital
stock of Communications. Schedule 2.5 sets forth the total number of authorized
and issued shares of capital stock for each of Orwell and Communications.
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 of each of its subsidiaries since
1957, the year in which the Seller gained control of the Company. A true and
complete list of the directors and officers of the Company and of each of its
subsidiaries as of the date hereof is set forth on Schedule 2.6. Seller and the
Company will provide the Purchaser with access to all of the corporate minute
books and stock record books of the Company and Communications for all periods
since their respective incorporation.
Section 2.7 Title to Stock. The shares of Company Capital Stock 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 with respect to the
Company or any of its subsidiaries. The shares of Company Capital Stock have
been duly authorized and validly issued and are fully paid and nonassessable.
The shares of Company Capital Stock were issued pursuant to applicable
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exemptions from registration under Federal securities laws and the securities
laws of the State of Ohio, 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 and the transfer and/or assignment of the Zenz Transaction Assets and the
Zenz Transaction Liabilities to the Seller in accordance with this Agreement,
the Seller will convey to the Purchaser and the Company, as the case may be,
good and marketable title to the shares of Company Capital Stock, free and clear
of all Liens whatsoever, and thereby also to the Communications Capital Stock,
free and clear of all Liens whatsoever. The assignments, endorsements, stock
powers and other instruments of transfer delivered by the Seller to the
Purchaser and the Company, as the case may be, at the Closing will be sufficient
to transfer the Seller's entire interest, and all of the interests, legal and
beneficial, of Seller and of all other Persons, in and to the shares of Company
Capital Stock and thereby in the Communications 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 of
Company Capital Stock and/or the shares of Communications Capital Stock and none
have been made to any stockholder of the Company or to any Seller since at least
December 31, 1998, except as set forth on Schedule 2.7.
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, December 31, 1996, December 31, 1997, and December 31, 1998
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") and (ii) the unaudited monthly balance
sheets of the Company as of January 31, 1999, February 28, 1999, March 31, 1999
and April 30, 1999 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 January 31, 1999, February 28, 1999, March 31, 1999 and
April 30, 1999 statements, with all monthly unaudited statements delivered to
Purchaser hereafter, the "Unaudited
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Financial Statements"). The Financial Statements have been audited without
qualification by Demarchi & 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 year-end adjustments and notes and/or adjustments and
notes that would result from an audit. Since December 31, 1998 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, other than those incurred in the ordinary course of business since
April 30, 1999, which individually and in the aggregate are not Material.
(b) Absence of Change. Except as set forth on Schedule 2.9
hereto, since December 31, 1998, (i) the Company's business has been operated
only in the ordinary course; (ii) there has been no Material Adverse Change in,
and, to the Seller's and Company's knowledge, 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, financial condition, or
results of operations of the Company; provided, however, that the "knowledge
qualification" of this clause (ii) shall apply only with respect to the acts or
actions of unaffiliated third parties which may be unknown to the Seller or
Company or which Seller or Company should reasonably not have known in the
ordinary course of their business, (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.
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(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 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. No contracts or provisions exist that would obligate the Company to pay
any amounts to any Person upon the change of control of the Company.
(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 does the Seller or the Company know of any activities or
proceedings of any labor union to organize any such employees. The Company
either has furnished to Purchaser complete and correct copies of all such
agreements, if any, or will provide the Purchaser with access to such items as
provided in Section 4.11 hereof following the signing of this Agreement
("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 on Schedule 2.10 hereto, (i) there is no
unfair labor practice charge or complaint pending before the
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National Labor Relations Board ("NLRB"), (ii) there is no labor strike, material
slowdown or material work stoppage or lockout actually pending or, to the
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 the Sellers and Company, no such investigation
is in progress.
Section 2.11 Absence of Certain Changes. Except as set forth on Schedule
2.11, since December 31, 1998, there has been no (a) Material Adverse Change in
the business, properties, financial statements, business prospects, financial
condition 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, financial condition 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 otherwise (including, without by way of limitation, in respect of the
Communications Capital Stock) or any redemption of the Shares (including,
without by way of limitation, in respect of the Communications Capital Stock),
(d) increase in the compensation payable to or to become payable by the Company
to its employees, officers, directors, shareholders, 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 on 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
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deferred compensation and/or commitments to provide life insurance
coverage or any other similar continuing commitments.
(ii) Collective bargaining agreements or any other
Contract with any labor union.
(iii) Hospitalization or medical insurance or other
welfare benefit plans or practices.
(iv) Loans to its employees, officers, directors,
shareholders 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.
(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.
(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/or 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) Agreements between Seller and customers of the
Business.
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(xvii) All cable television programming and franchise
agreements and internet provider agreements entered into by the
Business.
(xviii) Leases, licenses, easements, rights of way, pole
attachment agreements, pole rights agreements, conduit attachment
agreements, conduit rights agreements, satellite program carriage
agreements, license agreements for joint use of poles and other
agreements regarding property rights to earth stations, radio licenses,
paging licenses, utility poles, real property, fixtures and other
similar items used in the operation of the Business.
(xix) The grant or franchise of telephone or cable
television franchise rights.
(xx) Any investment or subsidiary of the Company,
including, but not limited to, those shown on Schedule 2.4 hereto.
(xxi) 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 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 to which it is
subject (including, without limitation, those required to be disclosed on
Schedule 2.12). Except as disclosed on 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 on 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. Except as disclosed on Schedule 2.12, each Contract to which the
Company is subject (including, without limitation, those required to be
disclosed on Schedule 2.12) is presently in effect, and neither the Company nor,
to the Seller's knowledge, any other party to any such Contract has claimed any
breach thereof, nor provided any indication of its intent to modify or terminate
such Contract prior to its current expiration date.
Section 2.13 True and Complete Copies. Seller and the Company either
have delivered to the Purchaser true and complete copies of all Contracts and
documents listed in the Schedules to this Agreement, as
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well as of all minute books and stock books of the Company and of each of its
subsidiaries, or will provide the Purchaser with access to such items as
provided in Section 4.11 hereof following the signing of this Agreement. Such
minute books and stock books are current and contain the true and complete
records kept of such companies. Seller and the Company agree to modify Schedule
2.12 within twenty (20) days following the signing of this Agreement to list all
Contracts with particularity, including setting forth the terms of any verbal
Contracts (including any restrictions upon immediate termination) and the date
and parties to any written Contracts, as well as such Contract's expiration
date.
Section 2.14 Title and Related Matters.
(a) Owned Property. Set forth on 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, 1998
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 and the Company either have delivered, with respect to
any real property owned by the Company, true and complete copies of all deeds,
title policies, environmental assessments, surveys, title policies and other
title documents relating to such real property, or will provide the Purchaser
with access to such items as provided in Section 4.11 hereof following the
signing of this Agreement. 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 on Schedule 2.14(b) is a
description of all real and personal property leased by the Company. No real or
personal property is used by the Company which it does not own or validly lease,
except as set forth on Schedule 2.14(b) hereto. Except as otherwise set forth on
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, to the Seller's or Company's
knowledge, any other Person under any such lease, and neither the Sellers 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 on Schedule
2.14(b), neither the
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Sellers 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. Seller and
the Company either have delivered to the Purchaser, with respect to any leased
real or personal property, true and complete copies of all such leases and all
amendments, supplements thereto or memoranda thereof, or will provide the
Purchaser with access to such items as provided in Section 4.11 hereof following
the signing of this Agreement.
(c) Compliance with Regulations. Except as set forth on 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") substantially comply 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 seventy-five (75) days. The Company's owned or
leased real property and its continued use, occupancy and operation as currently
used, occupied and operated does not, to the Seller's or Company's knowledge,
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
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, 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. To the Seller's or
Company's knowledge, access to all such public roads and utilities will be
available after the Closing Date in the same manner and to the same extent as at
the Closing Date.
(e) Condition. Except as set forth on Schedule 2.14(e), since
December 31, 1998, the Company has not sold, transferred, leased,
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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. Except as set forth on Schedule 2.14(e),
the assets and properties owned or leased 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 substantially 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 on 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 on Schedule 2.16, Orwell,
Communications 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. Except as set forth on Schedule
2.16, all Taxes through the Closing Date have been fully paid or reserved
against on the Unaudited Financial Statements and on the books of Orwell,
Communications and all their subsidiaries in accordance with GAAP. All Taxes
which are required to be withheld or collected by Orwell, Communications and all
their subsidiaries through the Closing Date have been duly withheld or collected
(and/or as of the Closing Date will 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 and/or as of the Closing Date will have been so paid,
properly segregated or deposited. There are no Liens for Taxes upon any property
or assets of Orwell, Communications 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 on Schedule 2.16, neither Orwell, Communications nor any of their
subsidiaries have requested an extension of time within which to file any Tax
Return which has not since been filed, and none have waived the statute of
limitations on the right of the IRS or any other taxing authority to
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assess or collect additional Taxes or to contest the information reported on any
Tax Return. All Taxes owed by any affiliated group of which Orwell,
Communications or any of their subsidiaries has at any time been a member
(whether or not shown on any Tax Return) have been, or will be prior to Closing,
paid for each taxable period through the Closing Date during which Orwell,
Communications or any of their subsidiaries was a member of the affiliated
group. Neither Orwell, Communications nor any of their subsidiaries has any
liability for the unpaid Taxes of any Person 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.
(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 Material
respects, and, except as disclosed on Schedule 2.16, there is no basis for
assessment of any addition to the Taxes shown thereon.
(c) Claims. Except as disclosed on 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. Except as
disclosed on Schedule 2.16, 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) state
accurately, in all Material respects, the information requested with respect to
Orwell, Communications 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 Orwell, Communications 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 as of the Closing Date have been so
withheld, deposited or paid by or on behalf of Orwell, Communications and all of
their subsidiaries, as appropriate
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and/or as of the Closing Date will have been so withheld, deposited or paid.
(f) Partnerships. Except as disclosed on Schedule 2.16, 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 on
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 on Schedule 2.16.
(j) Power of Attorney. Except as set forth on 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. Seller and the Company either have
delivered to the Purchaser true and complete copies of all Tax Returns filed by
the Company with respect to its 1993, 1994, 1995, 1996, 1997 and 1998 fiscal
years, or will provide the Purchaser with access to such items as provided in
Section 4.11 hereof following the signing of this Agreement.
Section 2.17 Bank and Brokerage Accounts. Set forth on 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.
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Section 2.18 Compliance with Applicable Laws, Regulations and Orders.
Except as set forth on Schedule 2.18 hereto, the Company, Communications and all
their subsidiaries have been and are 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 and cable
television signal leakage.
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").
The Seller and the Company either have delivered to the Purchaser
true and complete copies of all Pension Benefit Plans and Welfare Benefit Plans
(collectively, "ERISA Plans"), 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, or will provide
the Purchaser with access to such items as provided in Section 4.11 hereof
following the signing of this Agreement.
(b) With respect to the ERISA Plans, except as set forth
on Schedule 2.19:
(i) there is no ERISA Plan which is a "multi-employer"
plan as that term is defined in Section 3(37) of ERISA ("Multi-employer
Plan");
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(ii) no event has occurred or (to the knowledge of the
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
substantially 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;
(iv) no ERISA Plan is liable for any Federal,
state, local or foreign Taxes; and
(v) there is no ERISA Plan (and has not been any ERISA
Plan at any time during the last five (5) years) which is a defined
benefit plan under Section 414(j) of the Code or Section 3(35) of ERISA,
and there is no ERISA Plan subject to the minimum funding requirements
of Section 412 of the Code or Section 302 of ERISA.
(c) Except as set forth on Schedule 2.19, 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
material compliance with applicable Federal laws;
(ii) has been operated, since its inception substantially
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 and (to the knowledge of the 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) [Intentionally omitted.]
(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
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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
$350,000 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 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.
(h) 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 (including any
commitments to provide life insurance coverage, either generally or
tailored to any particular employees), 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).
(i) The Seller and the Company either have provided to the
Purchaser true and complete copies of all of the written plans,
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arrangements and agreements referred to on Schedule 2.19 ("Compensation
Commitments"), 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, or will
provide the Purchaser with access to such items as provided in Section 4.11
hereof following the signing of this Agreement. The Seller and the Company
either have provided to the Purchaser an accurate and complete written summary
with respect to any Compensation Commitment which is unwritten, or will provide
the Purchaser with such summary within twenty (20) days of the signing of this
Agreement.
(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
the Sellers 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 other than as listed on Schedule 2.20. No other Person
has any rights to such Proprietary Rights, except pursuant to agreements or
licenses specified on 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
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business as presently conducted and proposed to be conducted, with all such
licenses being specified on Schedule 2.20.
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 Company Capital Stock as contemplated hereby. In addition, except as set
forth on 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. Except as set forth on Schedule 2.21:
(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.
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(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,
to the Seller's and Company's knowledge, 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, to the Seller's and Company's
knowledge, 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 on 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 Sellers 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 on 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, 1998. There has been no order or ruling from the
PUCO or any other regulatory body and, to the Seller's and Company's knowledge,
none is threatened or expected by the Company requiring or recommending that the
Company undertake any capital expenditures or investments.
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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 on Schedule 2.23,
since December 31, 1998, 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 Seller's
or 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, 1995.
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.
(a) Generally. Schedule 2.26 hereto sets forth a list of all
permits, licenses, registrations, certificates, franchises, Orders, approvals or
other authorizations from any Authority or other Person including, without
limitation, the FCC and the PUCO and the municipalities of Orwell Village,
Leipsic Village, Pandora Village, Gilboa Village, Continental Village, Miller
City Village, Oakwood Village, Melrose Village, and West Leipsic, Ohio and such
other
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municipalities and townships set forth on Schedule 2.26 hereto, ("Permits")
issued to or held by the Company in connection with its operations, the Orwell
Business, the Exchange or the Communications Business. Such Permits are the only
Permits that are required for Orwell and Communications 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 each of
the Company 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. No other Person is
currently operating or providing cable television or telephone service within
the Orwell or Communications cable television franchise area or telephone
exchange area and, to the Seller's and Company's knowledge, no Person is
anticipating or contemplating doing so. Except as set forth on 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 Orwell and Communications 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 PUCO 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 PUCO 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 radio licenses, earth stations and/or other FCC
regulated activity is set forth on Schedule 2.26 hereto. A listing of all
returns, reports, applications, statements and other documents filed by the
Company within the past three (3) years with the FCC, the PUCO and any other
regulatory or governmental authority (including taxing authorities) or
municipality is attached hereto as Schedule 2.26; the Seller and the Company
either have provided true and complete copies of all such returns, reports,
applications, statements and other documents set forth on Schedule 2.26 to
Purchaser, or will provide the Purchaser with access to such items as provided
in Section 4.11 hereof following the signing of this Agreement. To the Seller's
and Company's knowledge, the transactions contemplated by this
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Agreement shall not cause the Exchange's cost study area to change. Orwell is
currently an average schedule company and neither the Company nor the Seller
know of any reason such average schedule company status should not continue to
be available to the Company after the Closing Date. There are currently no
restrictions imposed by any Authority upon the Company's rights to declare
dividends or make distributions, other than such restrictions as may arise in
connection with the Company's indebtedness to the Rural Electrification
Administration and/or the Rural Telephone Bank.
(b) Cable Television Business. Without limiting the foregoing,
the Sellers hereby expressly represent and warrant, with respect to all of the
Company's cable television ("CATV") business, that except as set forth on
Schedule 2.26 hereto:
(i) each CATV system operated by the Company is in
full compliance with all of the material requirements of its
current franchise;
(ii) no franchise authority has notified the Company that
any existing CATV system operated by the Company is in violation of any
of the terms of its present franchise, or that the quality of service
provided with respect to such CATV system has not been reasonable;
(iii) the Company has not received notice or any form of
correspondence from or on behalf of the FCC regarding failure to
properly file FCC Form 320 signal leakage reports with respect to any
CATV system operated by the Company;
(iv) all of the CATV systems operated by the Company are
in full compliance with the FCC's aeronautical band usage notice
requirements; have filed complete and correct FCC Form 320 signal
leakage reports for each year in which such report was required,
including, without way of limitation, the years 1998, 1997, 1996 and
1995; are in full compliance and shall remain in full compliance through
the Closing with all applicable FCC signal leakage standards and
requirements;
(v) the Company's semi-annual Copyright Statements of
Account for 1995, 1996, 1997, 1998 and 1999 (the February filing) have
all been filed in a timely fashion, and all appropriate royalty fees (as
well as all interest penalties) have been properly computed and paid;
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(vi) All of the CATV systems operated by the Company are
in substantial compliance with any and all "must carry" and or
"retransmission consent" requirements pursuant to the 1992 Cable Act
and/or applicable FCC rules and regulations, and there are no lawsuits,
FCC complaints or other proceedings pending, or, to the Seller's
knowledge, threatened or likely to be initiated against any such CATV
system with respect to alleged violations of such requirements; and
(vii) with respect to each CATV system operated by the
Company which currently serves one thousand (1,000) or more subscribers,
all technical tests required by the FCC for such system have been
performed, and such CATV system is in substantial compliance with all
applicable technical standards and requirements.
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 and the Unaudited
Financial Statements, (ii) current liabilities incurred in the ordinary course
of business and consistent with past practice after the date of the Financial
Statements and the Unaudited 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 (including future capital contributions or guaranty commitments)
are set forth on Schedule 2.4 hereto, setting forth the maximum amount of the
Company's potential obligations and the expected payment schedule therefor.
Except as disclosed on Schedule 2.12 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. 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 Year 2000 Compliance. The Company has (a)
initiated a review and assessment of all areas within its Business
and
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operations that could be adversely affected by the "Year 2000 Problem" (that is,
the risk that computer applications used by the Company may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to, including and any date after December 31, 1999), (b) developed a plan
and timeline for addressing the Year 2000 Problem on a timely basis, and (c) to
date implemented that plan in accordance with that timetable. The Sellers and
the Company reasonably believe that all computer applications that are material
to the Company's Business and operations will on a timely basis be able to
perform properly date-sensitive functions for all dates before, including and
after January 1, 2000. The Seller and Company either have provided a true and
complete copy of such plan and timeline to Purchaser, or will provide the
Purchaser with access to such items as provided in Section 4.11 hereof following
the signing of this Agreement.
Section 2.29 Disclosure. Neither this Agreement nor any of the
attachments, Schedules, Exhibits, 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 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 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.
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
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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. 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 (except upon the Shares as part of Purchaser's financing of this
transaction) 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 the Purchaser, (ii) any
applicable Regulation (including, without limitation, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976), (iii) any Order to which the Purchaser is
subject, or (iv) 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 Company Capital Stock 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, 1998 until the Closing Date, each of the Seller and the
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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 Seller, to cause the
Company to comply) with the following (the term "Company" as used in this
Article IV shall mean and include Orwell, Communications and any and all of
their subsidiaries and Affiliates):
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, 1998.
(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 on 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 Seller 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.
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Section 4.3 Capital Changes. Except as otherwise provided in Section 1.3
hereof, 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, other
than a transfer of shares of Company Capital Stock from the Seller to an
Affiliate of the Seller.
Section 4.4 Dividends. Except as otherwise provided in Section 1.3
hereof and except as set forth on Schedule 2.4 hereto, the Company shall not
declare, pay or set aside for payment any dividend or other distribution in
respect of its capital stock, other than in such amounts as were paid in 1998,
computed on a pro rata basis for the year. Upon any such dividend or
distribution payment, Purchaser shall be advised in writing.
Section 4.5 Capital Expenditures. The Company shall not make any capital
expenditures, or commitments with respect thereto, except as provided on
Schedule 2.22. Except as disclosed on Schedule 2.4, 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 or the
Unaudited Financial Statements delivered to Purchaser prior to the date hereof,
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 or
Affiliates.
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.
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Section 4.9 Interim Financial Information. From and after the date
hereof, the Company shall deliver to the Purchaser a copy of its internal
monthly Unaudited Financial Statements within forty-five (45) days after the end
of each month.
Section 4.10 Consents and Authorizations.
(a) Generally. Except as otherwise provided in Section 5.1
hereof, the Seller and the Company shall, promptly after the end of the
investigation period described in Section 7.15 hereof, commence efforts to
obtain the consents, waivers and authorizations listed on Schedules 2.3 and
2.26. Except as otherwise provided in Sections 5.1 and 7.15 hereof, 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.
(b) Primary Responsibility. The Seller shall, at Seller's expense
(including the Seller's payment of filing fees, attorney fees and other
associated expenses), have primary responsibility for and shall manage the
process of obtaining, with the Purchaser's assistance, the approval of the FCC
and/or any other state or local authority necessary with respect to the transfer
of the LMDS licenses referred to in Section 1.3(b) and Schedule 2.3 hereto.
Section 4.11 Access. Each of the Sellers 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 normal 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 and shall assemble any such documents in a central
location at the Company as Purchaser shall reasonably request. 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.
Section 4.12 Notice of Transfer. Each of the Sellers 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)
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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 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, 1998 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, which consent shall not be
unreasonably withheld or delayed.
Section 4.15 Cooperation with Purchaser. Each of the Sellers and the
Company shall cooperate with Purchaser as shall be necessary for Purchaser to
consummate this transaction and to obtain financing therefor, including giving
reasonable access during normal business hours to the Company's properties and
business records as shall be necessary for Purchaser to, among other things,
obtain surveys of the real property, title commitments with respect to the real
property and/or environmental assessments.
ARTICLE V
COVENANTS OF THE PURCHASER
Section 5.1 Consents and Authorizations.
(a) Generally. The Purchaser shall, promptly after the end of the
investigation period described in Section 7.15 hereof, commence efforts to
obtain the consents, waivers and authorizations listed on 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.
(b) Primary Responsibility. Purchaser shall, at its expense
(including the Purchaser's payment of filing fees, attorney fees and other
associated expenses), have primary responsibility for and shall manage the
process of obtaining, with the Sellers' and the Company's assistance, all
consents and approvals required to carry out the transactions contemplated by
this Agreement, whether from any
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local, state or Federal Authority or otherwise, other than the approval of the
FCC and/or any other state or local authority necessary with respect to the
transfer of the LMDS licenses referred to in Section 4.10(b) hereof. Purchaser
acknowledges and agrees that the Sellers and/or the Company shall retain the
right to act independently of Purchaser with respect to efforts to obtain such
consents and approvals for which Purchaser has primary responsibility and
process management responsibility hereunder; provided, however, that any
expenses (including filing fees, attorney fees and other associated expenses)
attributable to any such independent action shall be paid by the Sellers.
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 cause is defined in such employee's employment agreement with the
Company):
Gwenn P. Maguire
Timothy A. Pokorny
James L. Holl
Section 5.3 Extension of Purchaser Plan Coverage to Company Employees.
As soon as practicable after the Closing, the Purchaser shall take such action
as is necessary and appropriate to extend coverage under its then existing
defined contribution profit-sharing plan qualified under Sections 401(a) and
401(k) of the Code maintained and established by the Purchaser ("Purchaser's
Plan"), as such Plan shall be amended or modified from time to time, to those
employees of the Company as at Closing who remain employees of the Company or
become employees of the Purchaser or one of its Affiliates after the Closing.
Under Purchaser's Plan, the Company's employees shall be credited with service
for eligibility and vesting since their date of original hire with the Company,
as such service credits are set forth for each of the Company's continuing
employees on Schedule 5.3 hereof.
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
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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, on
the terms and subject to the conditions of this Agreement, each of the parties
hereto shall use all reasonable efforts to obtain all waivers, Permits,
authorizations, consents and approvals of, or notice to, 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 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, 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
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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 on 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 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, prior to the Closing Date or except as otherwise required by law
or in connection with a securities offering, 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 Seller.
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, Communications and all subsidiaries and Affiliates thereof.
(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
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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 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, Communications and all subsidiaries and Affiliates
thereof and/or their businesses 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 Company's cost to the Purchaser of the records, if any, 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 or otherwise under the provisions hereof. The
Seller 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. On the terms
and subject to the conditions of this Agreement, 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
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any claim is asserted against the Company relating to periods prior to the
Closing Date, Sellers 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 Sellers in asserting and pursuing such
coverage. In particular, the Purchaser shall, upon request by Sellers, cause the
Company to file all necessary claims and take all such other action as may
reasonably be requested by Sellers to pursue such coverage. As between Sellers,
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 Sellers 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 Sellers 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 Sellers shall be obligated to obtain new
insurance policies on any of the operations and assets distributed to any of
them as Zenz Transaction Assets as provided herein.
Section 6.9 Other Tax Matters.
(a) Tax Returns. The Purchaser, the Sellers, 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 Sellers 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), if any, which are in the
possession of the Sellers and which relate to any Taxes of the Company for any
taxable period through the Closing Date. Prior to the delivery of the materials
described in the preceding sentence, the Sellers shall cooperate with the
Purchaser in providing access to such materials as
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is reasonably required by the Purchaser. To the extent any such records are in
the possession of the Company at the Closing Date, such records shall remain on
the Company's premises.
The parties hereto agree that the Sellers shall prepare or cause to be
prepared and pay (but only to the extent not fully paid or reserved against on
the Financial Statements or Unaudited Financial Statements) all Taxes arising
therefrom, all Tax Returns for the Company for the periods ending on or before
the Closing Date and for all Taxes imposed against or attributable to the
Sellers arising as a result of the transactions contemplated by this Agreement.
Upon mutual agreement between the Sellers and the Purchaser, the Company may
prepare any such required Tax Returns. Purchaser shall prepare, and pay or cause
the Company to 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 Sellers 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 Sellers 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.
Section 6.10 Profit-Sharing Plan/COBRA Coverage. Prior to Closing, the
Seller shall amend (or cause to be amended) the 1989 Amended and Restated
Profit-Sharing Plan and Trust of The Orwell Telephone Company (the "Plan") to
provide that those eligible employees who are employed by the Company on the day
prior to Closing shall be entitled to an allocation of the 1999 contribution to
the Plan, based on compensation earned during the entire Plan Year. The Seller
and the Purchaser shall cooperate to ensure that proper allocations are
accomplished for the 1999 Plan Year (with the Company contribution for the 1999
Plan Year not to exceed an aggregate amount of $140,000 without Purchaser's
prior written consent). It is Purchaser's understanding that the Company has
heretofore prepaid the 1999 contribution to the Plan.
Purchaser agrees that no administrative expenses related to the
Plan for the Plan Year ending December 31, 1999 shall be paid out of the Plan.
To the extent not inconsistent with ERISA, Purchaser also
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agrees that the current Trustees of the Plan shall continue to serve as Trustees
until completion of the December 31, 1999 Plan accounting and that Purchaser
shall take no steps to remove such Trustees prior to completion of such
accounting.
To the extent the Company's insurance carrier as at the Closing
Date will not provide COBRA continuation coverage for persons not employed by
the Company after the Closing, the Purchaser or the Company shall make available
COBRA continuation coverage for all employees or former employees of the
Company, and their qualifying beneficiaries, whose qualifying event occurred
prior to or in connection with the transactions contemplated by this Agreement,
in accordance with applicable law. Purchaser has provided Seller with copies of
its health insurance documents and related summary plan descriptions.
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 Sellers 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
Contracts, agreements, covenants and conditions required by this Agreement to be
performed and complied with by them prior to the Closing Date. The Sellers shall
have delivered to the Purchaser a certificate, dated the Closing Date, in a form
reasonably satisfactory to the Purchaser, certifying to the foregoing, and
providing such supplemental information, agreements and disclosures as shall be
necessary to make such representations and warranties and all Schedules hereto
as accurate on the Closing Date as on the date originally given. The Seller
shall deliver to the Purchaser and the Company, as the case may be, all of the
certificates, stock powers and other documentation referenced in Section 9.2
hereof, evidencing the transfer to the Purchaser and the Company, as the case
may be, of clear title to all of the shares of Company Capital Stock and thereby
to all of the shares of the Communications Capital Stock at the Closing, all in
form and
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substance satisfactory to the Purchaser and its counsel in their sole
discretion.
Section 7.2 Consents and Approvals. The Seller, the Company and the
Purchaser shall have obtained all final consents, approvals, Orders,
qualifications, licenses, Permits, cable television franchise agreement
renewals, regulatory approvals (including but not limited to any necessary
consent, approval, exemption or notice as required by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976) and any other authorizations whether
specified on Schedules 2.3, 2.26 and 3.3 hereto or not and shall have given all
notices, 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, all 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. Except for
the obtaining of such consents and approvals from, and the giving of notice to,
such Authorities as set forth above, the obligations of the Purchaser under this
Agreement shall not be contingent upon or subject to the Purchaser obtaining
financing for the transactions contemplated by this Agreement.
Section 7.3 No Material Adverse Change. There shall have been no
Material Adverse Change in the business, properties, Financial Statements,
Unaudited Financial Statements, Schedules to this Agreement, business prospects,
financial condition or results of operations of the Company since December 31,
1998 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 and no litigation shall have been consummated or threatened 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 Orwell and Communications dated the
Closing Date, as to the charter (attaching a Secretary of State certified copy
thereof, with all amendments) and by-laws of Orwell and Communications and the
resolutions adopted by the shareholders and directors of Orwell and
Communications 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
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by the appropriate governmental authorities evidencing the good standing of
Orwell, Communications and each of their subsidiaries in their respective
jurisdictions of incorporation and in each jurisdiction in which each is
qualified to do business as a foreign corporation 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 Agreements. The Seller and Company shall have
caused Ann Pokorny, individually and in her capacity as Trustee of the A.
Pokorny Trust, and Donald Pokorny, individually and in his capacity as Trustee
of the D. Pokorny Trust, to enter into the Noncompetition Agreements in
substantially the form attached hereto as Exhibit 7.8.
Section 7.9 Employment Agreement. The Seller and Company shall have
caused Gwenn P. Maguire, Timothy A. Pokorny and James L. Holl to enter into the
Employment Agreements in substantially the form attached hereto as Exhibit 7.9.
Section 7.10 Resignations. The Seller shall have caused all directors
and officers of Orwell, Communications 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, Orwell's and Communications' officers, directors and others, as
the Purchaser shall reasonably request to evidence compliance with the
conditions set forth in this Agreement.
Section 7.12 Liens. The Seller shall have removed all Liens on the
Shares and/or on the assets and properties of the Company other than Permitted
Liens.
Section 7.13 Delivery of Minute Books. The Seller shall deliver at
Closing all original outstanding share certificates, minute books, corporate
seals and stock transfer records of Orwell, Communications and of all their
direct and indirect subsidiaries, as well as original evidence of all their
respective investments.
Section 7.14 Delivery of Financial Statements. The Seller shall deliver
Unaudited Financial Statements to the Purchaser on
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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 7.15 Satisfactory Investigation. Assuming full cooperation from
the Seller and the Company (which shall include Seller granting Purchaser's
requests for particular days for on-site due diligence visits, as well as prompt
delivery of such due diligence documents and information as Purchaser may
reasonably request), no later than thirty-seven (37) days from the date of this
Agreement, the Purchaser shall have determined (in its sole discretion, acting
in good faith), after consideration of the Schedules delivered by Seller as
provided herein and the documents and other information set forth therein, and
after the Purchaser and its representatives shall have completed the
investigations of the affairs of the Company contemplated by Section 4.11
hereof, that the information revealed by such Schedules and documents or
discovered by the Purchaser or its representatives during such investigations is
not Materially at variance with the purported financial condition, or the
business, assets, properties, liabilities, results of operations, or earnings of
the Company as represented to the Purchaser by the Seller prior to the execution
of this Agreement ("Material Variances") and/or that the business prospects of
the Company and/or the regulatory climate for the Company's business are
favorable. Upon Purchaser's determination that there are no such Material
Variances and that the Company's business prospects and the regulatory climate
are favorable, Purchaser shall notify Seller in writing of its desire to proceed
with the transactions contemplated herein within ten (10) days of Purchaser's
determination (but no later than forty (40) days from the date of this
Agreement, and Purchaser shall promptly thereafter commence to obtain all
necessary consents, waivers and authorizations described in Section 5.1 hereof.
In the event Purchaser does not notify the Seller within forty (40) days from
the date of this Agreement either of its desire to proceed pursuant to this
Section 7.15 or of an unsatisfactory investigation pursuant to Section 10.1(f)
hereof, then Purchaser shall be deemed to have determined that there are no
Material Variances and/or no unfavorable climate and to have notified Seller of
Purchaser's desire to proceed with the transactions contemplated herein.
Notwithstanding anything to the contrary herein, if the Purchaser makes an
unreasonable determination that there are Material Variances and/or an
unfavorable climate and terminates this Agreement as provided in Section 10.1(f)
hereof, then the Purchaser shall promptly pay to the Seller the Seller's
out-of-pocket fees, including, without limitation, legal fees and expenses
incurred in connection with the transaction contemplated hereby plus the
additional amount of $25,000.
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Section 7.16 Cable Television Franchise Agreements Renewal. All cable
television franchise agreements described on Schedule 2.26 shall have been
renewed or extended, if necessary, so that each has an expiration date at least
ten (10) years from and after the Closing Date.
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
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, in a form reasonably satisfactory
to the Seller, certifying to the foregoing, and 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 final consents, approvals, Orders,
qualifications, licenses, Permits, regulatory approvals, (including but not
limited to any necessary consent, approval, exemption or notice as required by
the Hart-Scott-Rodino Antitrust Improvements Act of 1976), and other
authorizations, whether specified on Schedules 2.3, 2.26 and 3.3 hereto or not
and shall have given all notices, 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, all with respect to the execution,
delivery and performance of this Agreement.
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Section 8.3 No Proceeding or Litigation. No Order or Regulation shall be
in effect and no litigation shall have been consummated or threatened 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 November 1, 1999 (or on such date either before or after November 1, 1999
as the parties hereto shall mutually agree, which shall be on the first day of
the month which date is at least ten (10) days after receipt of all PUCO, FCC,
Hart-Scott-Rodino, municipal and other approvals required as a precondition to
Closing) (the "Closing Date") in the offices of the Seller'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.
Section 9.2 Closing Date Payment and Receipt of Shares. On the Closing
Date, (i) the Seller will assign and transfer to the Purchaser and the Company,
as the case may be, good and valid title in and to the Company Capital Stock,
free and clear of all Liens, by delivering to the Purchaser and the Company, as
the case may be, stock certificates representing the Company Capital Stock, duly
endorsed for transfer or accompanied by duly executed stock powers endorsed in
blank with requisite stock transfer tax stamps, if any, attached, and the
Company shall deliver stock certificates representing the Communications Capital
Stock; (ii) the Purchaser shall, by wire transfer of same-day funds, deposit in
an escrow account the amount of Two Million Dollars ($2,000,000), all as
provided in Section 11.2
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hereof; (iii) the Purchaser shall, by wire transfer of same-day funds, pay to
the Seller the amount of the Purchase Price for the shares of Company Capital
Stock set forth in Section 1.2 hereof, less the Escrow Funds; (iv) the Company
shall transfer and/or assign the Zenz Transaction Assets and Zenz Transaction
Liabilities to the Seller as set forth in Section 1.3 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.
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
reasonably satisfied (and remain so unsatisfied for more than thirty (30) 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 thirty (30) 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, VI or VII 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 reasonably satisfied (and remain so unsatisfied for more than thirty (30)
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 thirty (30) days after the Seller has
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, VI or VIII hereof.
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(d) Failure to Close by December 31, 1999. By either party in the
event the Closing has not occurred by December 31, 1999, unless such failure to
close shall be due to a breach of this Agreement by the party seeking to
terminate the Agreement.
(e) Material Adverse Change. By the Purchaser if a Material
Adverse Change shall be shown (in the reasonable discretion of Purchaser, acting
in good faith) in any of the Unaudited Financial Statements delivered after the
date hereof or otherwise and written notice of termination of this Agreement
shall have been given by the Purchaser to the Seller within thirty (30) business
days of Purchaser's receipt of such Unaudited Financial Statements.
(f) Unsatisfactory Investigation. By the Purchaser if Purchaser
shall have determined pursuant to Section 7.15 hereof that a Material Variance
exists or that an unfavorable climate exists and that it does not desire to
proceed with the transactions contemplated herein and written notice of
termination of this Agreement shall have been given by the Purchaser to the
Seller within ten (10) days of Purchaser's determination (but no later than
forty (40) days from the date of this Agreement).
(g) 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
such party, or disclosed to third parties.
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ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
Section 11.1 Survival; Limitations. 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, three (3)
years from the Closing Date (the "Indemnification Period"); provided, however,
that with respect to any income tax liability of Orwell, Communications 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 the Sellers 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 IRC; and further provided,
however, that with respect to the ownership of the Company Capital Stock and/or
the Communications Capital Stock, the agreement of the Sellers to indemnify
Purchaser and its Affiliates shall survive forever and claims with respect
thereto shall be made as any such claims arise.
Section 11.2 Escrow of Liquid Assets. Two Million Dollars ($2,000,000)
of the Purchase Price otherwise payable to Sellers for their Company Capital
Stock (the "Escrow Funds") shall be maintained in an escrow account (the "Escrow
Account"), with The Middlefield Banking Company, Middlefield, Ohio (the "Escrow
Agent"), 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
(the "Escrow Agreement"). In the event the Escrow Account is still in existence,
then prior to seeking indemnification directly from the Seller under the
provisions of Section 11.3 hereof, the Purchaser shall make a claim from the
Escrow Account, to the extent there are Escrow Funds remaining in the Escrow
Account at such time, 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, 11.8 and 11.9 hereof, the
Purchaser and its Affiliates (including, without
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limitation, Orwell and Communications) and their respective officers, directors,
employees, shareholders, representatives and agents shall be indemnified and
held harmless jointly and severally by Seller, their respective heirs,
successors, personal representatives and assigns, against and in respect of any
Damages resulting from, or in respect of, any of the following:
(a) Misrepresentation or Breach. Any misrepresentation or breach
of a warranty of the Seller or the Company (including any relating to the
ownership of the Company Capital Stock and/or of the Communications Capital
Stock, or nonfulfillment of any obligation on the part of 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, Unaudited Financial Statement, or instrument delivered by or on
behalf of the Seller, the Sellers or the Company hereunder.
(b) Taxes. To the extent not fully paid or reserved against on
the Financial Statements or Unaudited Financial Statements or otherwise
specifically disclosed herein, all Taxes of the Seller, of Orwell,
Communications or any of their subsidiaries or Affiliates or with respect to
their investments, including but not limited to Communications' interest in Ohio
RSA #3 Limited Partnership, attributable to any period through the Closing Date.
Notwithstanding anything to the contrary herein, Seller shall have no liability
whatsoever (for indemnification or otherwise) with respect to any Taxes of
Orwell, Communications or any of their subsidiaries or Affiliates resulting
from, arising out of or otherwise attributable to any proceedings or
examinations by any taxing Authority of any Tax Returns of the Toledo MSA
Limited Partnership, Youngstown-Warren MSA Limited Partnership, Ohio RSA 5
Limited Partnership, and Ohio RSA 6 Limited Partnership, but only to the extent
such Taxes pertain to the subject matter disclosed on Schedule 2.16 hereto under
the heading "Post-Sale IRS Examinations" (the "Cellular Audit Taxes").
(c) Other 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 Zenz Transaction Liabilities or Zenz Transaction Assets
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, or any Claim resulting
from or arising as a result of Sellers' transfer of their Company Capital Stock
as provided in Section 4.3 hereof.
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(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 Date,
subject to the limitations set forth in Sections 11.1, 11.8 and 11.9 hereof, the
Seller and its Affiliates and their respective officers, directors, employees,
shareholders, representatives and agents shall be indemnified and held harmless
by the Purchaser, its successors and assigns, against and in respect of any
Damages 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) Other Claims. Any Claim of a third party arising out of the
business or operations of the Company 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 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 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
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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 immediately 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 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. In the alternative, in the event the
Purchaser or any of its Affiliates is the Indemnitee, and to the extent there
are Escrow Funds remaining in the Escrow Account at such time, the Indemnitor
and the Indemnitee shall jointly instruct the Escrow Agent, in writing, to make
such payment and reimbursement from and out of the Escrow Account. 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
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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 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 Indemnitee shall be borne by the Indemnitor.
Section 11.6 Other Claims.
(a) In the event an Indemnitee should have a claim under this
Article XI against an Indemnitor that does not involve a third party Claim, the
Indemnitee shall promptly give notice (the "Indemnitee Notice") and the details
thereof, including copies of all relevant information and documents, to the
Indemnitor within a period of thirty (30) days following the discovery of the
claim by the Indemnitee (the "Claim Notice Period"). The failure by any
Indemnitee to give the Indemnitee Notice within the Claim Notice Period shall
not impair the Indemnitee's rights hereunder except to the extent that the
Indemnitor demonstrates that it has been prejudiced thereby. The Indemnitor will
notify the Indemnitee within a period of ten (10) days after the receipt of the
Indemnitee Notice by the Indemnitor (the "Indemnity Response Period") whether
the Indemnitor disputes its liability to the Indemnitee under this Article XI
with respect to such Claim. If the Indemnitor notifies the Indemnitee that it
does not dispute the Claim described in such Indemnitee Notice or fails to
notify the Indemnitee within the Indemnity Response Period whether the
Indemnitor disputes the claim described in such Indemnitee Notice, the actual
damages as finally determined will be conclusively deemed to be a liability of
the Indemnitor under this Article XI and the Indemnitor shall pay the amount of
such damages to the Indemnitee on demand or, in the event the Purchaser or any
of its Affiliates is the Indemnitee, and to the extent the Escrow Account is
still in existence, give prompt written notice to the Escrow Agent to pay such
amount from and out of the Escrow Funds. If the Indemnitor notifies the
Indemnitee within the Indemnity Response Period that the Indemnitor disputes its
liability with respect to such Claim, the Indemnitor and the Indemnitee will
proceed in good faith to negotiate a resolution of such dispute, and if not
resolved through
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negotiations within a period of thirty (30) days from the date of such notice or
such longer period as may be agreed to by the parties in writing, such dispute
shall be submitted to mediation in accordance with Section 11.6(b) hereof. If
such dispute is resolved through negotiations at a time when the Escrow Account
is still in existence, and if the resolution of such dispute involves payment
from and out of the Escrow Funds, then the Indemnitor and the Indemnitee shall
promptly jointly instruct the Escrow Agent, in writing, as to the details of
such payment.
(b) Any dispute required to be submitted to mediation pursuant to
this Section 11.6 shall be submitted to mediation before an impartial, neutral
mediator selected by the parties. Mediation shall be conducted in accordance
with the rules applicable to the mediation of civil actions pending in the
Superior Court, Mecklenburg County, North Carolina. If the parties are unable to
agree upon the mediator within fifteen (15) days after the expiration of the
period for negotiation provided in Section 11.6(a) above, either party may
request the appointment of a mediator by the American Arbitration Association.
The mediation shall be conducted in Charlotte, North Carolina, or at such other
location as may be agreed to by the parties in writing. The fees and expenses of
the mediator shall be borne equally by the parties. If the dispute has not been
resolved through mediation within thirty (30) days from the selection of the
mediator or such longer period as may be agreed to by the parties in writing,
such dispute shall be resolved by arbitration in accordance with Section 11.6(c)
hereof. If such dispute is resolved through mediation at a time when the Escrow
Account is still in existence, and if the resolution of such dispute involves
payment from and out of the Escrow Funds, then the Indemnitor and the Indemnitee
shall promptly jointly instruct the Escrow Agent, in writing, as to the details
of such payment.
(c) Any dispute required to be submitted to arbitration pursuant
to this Section 11.6 shall be finally and conclusively determined in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(the "Rules of Arbitration") then in effect. In any dispute where the aggregate
amount in controversy is less than $200,000.00, the dispute shall be resolved by
the decision of a single arbitrator selected by the parties. If the parties are
unable to agree on an arbitrator within fifteen (15) days after the expiration
of the period for mediation provided in Section 11.6(b) above, either party may
request the appointment of an arbitrator by the American Arbitration
Association. In any dispute where the aggregate amount in controversy equals or
exceeds $200,000.00, the dispute shall be resolved by the decision of three (3)
arbitrators selected in accordance with the Rules of Arbitration (the "Board of
Arbitrators").
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The arbitration proceedings shall take place in Charlotte, North Carolina or at
such other location as may be agreed to by the parties in writing. The
arbitrator or the Board of Arbitrators shall have the power to subpoena
witnesses and documents, and the parties shall be entitled to reasonable
discovery, including depositions and requests for production of documents, in
accordance with the Federal Rules of Civil Procedure, under the Local Rules of
Practice of the United States District Court for the Western District of North
Carolina. With respect to such discovery and the application of said Local
Rules, the arbitrator or Board of Arbitrators shall classify the pending dispute
as either a "Standard" or "Complex" case (but in no event as an "Expedited"
case), and apply such discovery rules accordingly. The arbitrator or Board of
Arbitrators shall render its decision in writing setting forth in reasonable
detail the findings of fact and conclusions of law of the arbitrator or Board of
Arbitrators and stating the amount, if any, which the Indemnitor is required to
pay to the Indemnitee in respect of the claim made by the Indemnitee. The
decision of the arbitrator or Board of Arbitrators shall be rendered as soon as
practical following commencement of proceedings with respect thereto. The
arbitrator or Board of Arbitrators shall cause its written decision to be
delivered to the Indemnitee and the Indemnitor and, in the event the Escrow
Account is still in existence, to the Escrow Agent. Any decision made by the
arbitrator or Board of Arbitrators shall be final, binding and conclusive on the
Indemnitee and the Indemnitor and entitled to be enforced to the fullest extent
permitted by law and entered in any court of competent jurisdiction.
The parties hereto hereby consent to the jurisdiction of the
foregoing arbitrator or Board of Arbitrators and to the jurisdiction of any
local, state or Federal court located in the State of Ohio or North Carolina for
the purpose of enforcing the decision or award of the arbitrator or Board of
Arbitrators, as the case may be, or otherwise. The parties hereto agree that all
service of process may be made on any such party by personal delivery or by
registered or certified mail addressed to the appropriate party at the address
for such party set forth in this Agreement.
All fees, costs and expenses of the prevailing party in any
arbitration, including, but not limited to, attorneys' fees, shall be awarded to
the prevailing party from the nonprevailing party as part of the decision of the
arbitrator or Board of Arbitrators. For purposes hereof, a "Prevailing Party"
shall mean the party which substantially prevails in its position in
arbitration. Each and every mediation and/or arbitration proceeding commenced
pursuant to Section 11.6(b) or Section 11.6(c) hereof, as the case may be, shall
be consolidated with any mediation and/or arbitration proceedings simultaneously
or
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previously commenced (but not concluded) under Section 11.6(b) or Section
11.6(c) hereof, as the case may be.
Section 11.7 Continued Liability for Indemnity Claims. The liability of
any Indemnitor hereunder with respect to claims hereunder shall continue for so
long as any claims for indemnification may be made hereunder pursuant to this
Article XI and, with respect to any such indemnification claims duly and timely
made, thereafter until the Indemnitor's liability therefore is finally
determined and satisfied.
Section 11.8 Basket Amount.
(a) Indemnification by the Seller. Notwithstanding anything to
the contrary herein, Seller will have no liability (for indemnification or
otherwise) with respect to the matters described in Section 11.3 of this
Agreement until the total of all Damages suffered by the Purchaser and/or its
Affiliates exceeds Three Hundred Thousand Dollars ($300,000.00)(the "Basket
Amount"), and then only for the amount by which such Damages exceed the Basket
Amount. Notwithstanding anything in this Agreement to the contrary, to the
extent the aggregate Cellular Audit Taxes are determined with finality to be
less than Three Hundred Twenty-Five Thousand and No/100 Dollars ($325,000.00),
then the Basket Amount shall be increased for all purposes hereunder,
dollar-for-dollar, by the amount of such shortfall.
(b) Indemnification by the Purchaser. Further, notwithstanding
anything to the contrary herein, Purchaser will have no liability (for
indemnification or otherwise) with respect to the matters described in Section
11.4 of this Agreement (other than the nonfulfillment, in whole or in part, of
any obligation on the part of the Purchaser under this Agreement which relates
to the payment of the Purchase Price) until the total of all Damages suffered by
the Seller and/or its Affiliates exceeds the Basket Amount and then only for the
amount by which such Damages exceed the Basket Amount.
(c) Aggregation. Notwithstanding the foregoing, to the extent
indemnification is sought under Sections 11.3(a) or 11.4(a) of this Agreement,
any and all misrepresentations or breaches or nonfullfilments shall be
aggregated for purposes of determining if the Basket Amount has been met. By way
of example, and not by way of limitation, if Seller shall have failed to perform
three obligations of the type referred to in Section 2.12(b) hereof, each
causing Damages of $105,000, then payment in the amount of $15,000 shall be made
to Purchaser as provided herein (assuming the Basket Amount to be $300,000).
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Section 11.9 Maximum Liability. Notwithstanding anything to the contrary
herein, under no circumstances shall the aggregate liability of Seller or
Purchaser (for indemnification or otherwise) for Damages under this Agreement
exceed Five Million Dollars ($5,000,000.00), provided, however, that this
Section 11.9 shall not apply to the nonfulfillment, in whole or in part, of any
obligation on the part of the Purchaser under this Agreement which relates to
the payment of the Purchase Price.
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 all of 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 PUCO and the municipalities of
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Orwell Village, Leipsic Village, Pandora Village, Gilboa Village, Continental
Village, Miller City Village, Oakwood Village, Melrose Village, and West
Leipsic, Ohio, and such other municipalities and townships set forth on Schedule
2.26 hereto, 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 Cleveland, Ohio, or Charlotte, North Carolina, 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, or otherwise, 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
Orwell, Communications and all their subsidiaries and Affiliates.
"Contract" shall mean any agreement, contract, commitment, instrument or
other binding arrangement or understanding, whether written or oral.
"Damages" shall mean 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
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of the matters described in either Section 11.3 or Section 11.4 of this
Agreement, as the case may be.
"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, 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.
"Escrow Account" shall have the meaning ascribed to such term in Section
11.2 hereof.
"Escrow Agreement" shall have the meaning ascribed to such term in
Section 11.2 hereof.
"Escrow Funds" shall have the meaning ascribed to such term in Section
11.2 hereof.
"FCC" shall mean the Federal Communications Commission.
"Financial Statements" shall have the meaning ascribed to such term in
Section 2.9(a) hereof.
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"GAAP" shall mean United States generally accepted accounting
principles, consistently applied, as in existence at the date hereof and/or at
the Closing Date.
"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.
"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.
"IRC" or the "Code" 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" shall mean any act or action or failure to act or failure to
comply with any law, Regulation or Contract or any misrepresentation or omission
which has, or could reasonably be expected to have, an impact on the Company's
earnings before taxes, interest, depreciation and amortization and/or Damages or
potential Damages, either individually or in the aggregate, in any one
(1)calendar year of Two Hundred Thousand Dollars ($200,000.00) or more.
"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, financial condition or results
of operations.
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"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 or the Unaudited Financial Statements.
"Person" shall mean any corporation, partnership, joint venture,
organization, entity, trust, Authority or natural person, together with any and
all heirs, successors, representatives and assigns thereof.
"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.
"PUCO" shall mean the Public Utilities Commission of the State of Ohio.
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"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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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, Execu- Charlotte, NC 28244-2020
tive Vice President ATTN: Shirley J. Linn, Esq.
(704) 344-8150 (Phone) (704) 333-1200 (Phone)
(704) 344-8121 (Fax) (704) 377-9630 (Fax)
Notices to Seller, to the
Company and to the Sellers With a Copy to:
-------------------------- --------------
Albert Leonetti, Esq. Ulmer & Berne LLP
Executive Vice President Ninth Floor, Bond Court Bldg.
Tower East, Suite 400 1300 East Ninth Street
20600 Chagrin Boulevard Cleveland, OH 44114-1583
Shaker Heights, OH 44122 ATTN: John C. Goheen, Esq.
(216) 752-1000 (Phone) (216) 902-8901 (Phone)
(216) 752-1002 (Fax) (216) 621-7488 (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
hereto; provided, that the Purchaser may, without the prior written consent of
the Seller or any other party hereto, 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 Communications, Inc. or MJD Services Corp., but only if (a) such
Affiliate has the financial and other wherewithal to fully and completely
perform and otherwise discharge the Purchaser's obligations hereunder and
consummate the transactions contemplated hereby, and (B) the Purchaser remains
liable for its obligations hereunder, or (ii) its lenders as collateral in
connection with the financing of the transactions contemplated hereby; and
further provided, that the Seller may, without the prior written consent of the
Purchaser or any other party hereto, assign its rights and obligations hereunder
and under any other Contracts or documents executed or delivered in connection
herewith to an Affiliate of the
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Seller to whom the Seller has transferred its shares of Company Capital Stock,
but only if the Seller remains liable for its obligations hereunder.
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.
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.
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Section 12.13 Expenses.
(a) Generally. Except as otherwise provided herein, 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 (which, with respect to such expenses incurred by or on
behalf of the Seller, or the Company prior to Closing, shall be paid by the
Seller and not by the Company).
(b) Seller's Payment of Purchaser's Expenses. Notwithstanding
anything to the contrary herein, 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, legal fees and expenses, incurred in connection with the
transactions contemplated hereby.
(c) Purchaser's Payment of Certain of Seller's Expenses.
Notwithstanding anything to the contrary herein, the Purchaser and/or the
Company shall pay up to Fifty Thousand Dollars ($50,000.00) of the Seller's
expenses, and/or the Company's expenses incurred prior to Closing, including
without limitation, legal fees and expenses, incurred in connection with the
transactions contemplated hereby.
Section 12.14 Time of the Essence. Time is strictly of the essence with
respect to the provisions of this Agreement.
Section 12.15 Injunctive Relief. The parties hereby agree that any
remedy at law for any breach of the provisions of this Agreement shall be
inadequate and that the nonbreaching party shall be entitled to injunctive
relief in addition to any other remedy which such nonbreaching party might have
at law or in equity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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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, Executive
Vice President
/s/ Albert Leonetti (SEAL)
------------------------------
ALBERT LEONETTI, CO-TRUSTEE OF
THE FRANK LEONETTI, JR. TRUST
DATED JANUARY 13, 1992
/s/ Frank Leonetti (SEAL)
-----------------------------
FRANK LEONETTI, III, CO-TRUSTEE
OF THE FRANK LEONETTI, JR. TRUST
DATED JANUARY 13, 1992
/s/ Albert Leonetti (SEAL)
-----------------------------
ALBERT LEONETTI, individually
/s/ Ann Pokorny (SEAL)
------------------------------
ANN POKORNY, TRUSTEE UNDER THE
DECLARATION OF TRUST DATED
OCTOBER 26, 1989
/s/ Donald Pokorny (SEAL)
-----------------------------
DONALD POKORNY, TRUSTEE UNDER
THE DECLARATION OF TRUST DATED
OCTOBER 26, 1989
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THE ORWELL TELEPHONE COMPANY
/s/ The Orwell Telephone Company
----------------------------------
By: Donald Pokorny
Title: President
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Schedule 3.3
Consents and Authorizations of Purchaser
<PAGE>
Schedule 3.3
Consents and Authorizations of Purchaser
1. The contemplated purchase and sale transaction set forth in Sections
1.1--1.2 of the Agreement would effect a transfer of control in The Orwell
Telephone Company ("Company"). Since the Company is an Ohio public utility, any
change in control requires the prior approval of the PUCO, for which provision
has been made, inter alia, in Sections 7.2 and 8.2 of the Agreement.
2. The contemplated purchase and sale transaction set forth in Sections
1.1--1.2 of the Agreement would effect a transfer of control in the Company.
Such change in control requires the prior approval of the FCC with respect to
the two Improved Mobile Telephone Service (IMTS) licenses (Orwell Station KLF
475 and Leipsic Station KKB 697) and the radio license (Leipsic Station KNAC
289) used by the Company's construction/maintenance personnel, for which
provision has been made, inter alia, in Sections 7.2 and 8.2 of the Agreement.
3. The contemplated redemption transaction set forth in Sections
1.3--1.4 of the Agreement pursuant to which the Zenz Transaction Assets and Zenz
Transaction Liabilities would be transferred/assigned to the Seller requires the
prior approval of the PUCO, for which provision has been made, inter alia, in
Sections 7.2 and 8.2 of the Agreement.
4. The transfer of the LMDS licenses set forth on Schedule 1.3 to Donald
Pokorny, Trustee, and Ann Pokorny, Trustee, or their nominee, and the transfer
of the Company assets set forth on Schedule 1.3 as part of the contemplated
redemption transaction set forth in Section 1.3--1.4 of the Agreement requires
the prior approval of the FCC, for which provision has been made, inter alia, in
Sections 7.2 and 8.2 of the Agreement and will require a waiver from the United
States of America acting through the Administrator of the Rural Electrification
Administration of its right to obtain a security interest in any and all of the
after acquired property of The Orwell Telephone Company pursuant to that certain
Supplemental Mortgage and Security Agreement by and among The Orwell Telephone
Company, the United States of America through the Administrator of the Rural
Electrification Administration and Rural Telephone Bank with respect to the
temporary transfer of such license from Orwell Communications, Inc. to The
Orwell Telephone Company.
5. Hart-Scott-Rodino filing needed.
<PAGE>
6. See also those approvals and/or notifications set forth on Schedules
2.3 and 2.26.
7. Prior approval may be needed with respect to the CATV franchise
agreements and/or with respect to certain of the Company's Contracts.
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Exhibit 7.7
Opinion of Seller's Counsel
<PAGE>
Exhibit 7.9
Employment Agreements
<PAGE>
EMPLOYMENT AGREEMENT
THE ORWELL TELEPHONE COMPANY
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of the _______ day of ___________, 1999, by and between THE ORWELL
TELEPHONE COMPANY, an Ohio corporation (the "Company") and
_________________________________, a resident of the State of Ohio (the
"Employee").
In consideration of continued employment and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Employee agree as
follows:
1. Employment. The Employee agrees to devote his [her] entire work time
to the performance of such duties and responsibilities as are assigned to him
[her] from time to time by the Company, in the exercise of its reasonable
discretion, acting in good faith. The Employee agrees to perform and discharge
such duties and responsibilities faithfully, diligently and in a timely manner,
and agrees to abide by all Company policies relating to its employees generally.
2. Term.
(a) The Employee's initial term of employment hereunder (the
"Initial Term") shall be a period of three (3) years, commencing with
the effective date of this Agreement. Thereafter, so long as the
Employee performs his duties and responsibilities in a reasonable and
efficient manner to the satisfaction of the Company, as determined by it
in its reasonable discretion, acting in good faith, the term of the
Employee's employment shall be at the mutual satisfaction of the
parties, who anticipate it will be of indefinite duration.
(b) Notwithstanding the foregoing, the Company reserves the right
to terminate the Employee's employment at any time, during the Initial
Term, either (1) upon the closure of the Company's office for which the
Employee performs his duties, or (2) for cause, as set forth in
Paragraph 5 below.
(c) Additionally, each party reserves the right, at any time
following the Initial Term, to terminate the relationship for any or no
reason, upon the giving of at least thirty (30) days' written notice to
the other.
<PAGE>
3. Compensation. All component parts and aspects of the Employee's
compensation, including any salary, bonuses and any other form of compensation,
are hereafter referred to as "Compensation." During the Initial Term, the
Employee's annualized Compensation shall be not less than $______________.
Following the Initial Term, the Employee's Compensation shall be determined and
modified by the Company, from time to time in its reasonable discretion, acting
in good faith, in accordance with the Company's policies and procedures for
determining compensation for its other employees having comparable compensation
arrangements and performing similar duties and responsibilities as those of the
Employee. The Employee's Compensation shall be paid in accordance with such
payroll policies and procedures as the Company adopts from time to time in its
reasonable discretion, acting in good faith.
4. Benefits. Subject to and contingent upon the Employee meeting and
complying with, and continuing to comply with, all eligibility and participation
conditions and requirements, the Employee shall receive such hospitalization,
major medical, and disability insurance benefits, if any, as well as such other
fringe benefits provided to or made available by the Company for its employees
generally, in accordance with the terms and provisions of such insurance and
benefit programs as they may exist from time to time.
5. Termination for Cause. The Company may terminate immediately the
Employee's employment for cause, as such cause is determined by the Company in
the exercise of its reasonable discretion, acting in good faith, for any one (1)
or more of the following causes:
(a) Failure of the Employee to devote his full employment time
to the Company's business;
(b) Failure of the Employee to perform his duties and
responsibilities, as assigned to him by the Company from time to time,
to the Company's reasonable satisfaction;
(c) Failure of the Employee to comply, to the Company's
reasonable satisfaction, with the Company's policies, standard methods
and procedures; provided, however, that with respect to any such failure
to comply which does not create liability for the Company or does not
constitute an act of dishonesty, the Company has given the Employee
prior written notice of, and a twenty (20) day opportunity to cure, such
failure to comply;
(d) Any act of dishonesty or insubordination by the Employee
resulting or intended to result in a financial loss to
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<PAGE>
the Company or resulting in damage to the Company's reputation; or
(e) Conviction of the Employee, including a plea of nolo
contendere by the Employee, of a crime involving an act of moral
turpitude.
In the event the Company terminates the Employee's employment for cause,
no advance notice shall be required to be given to the Employee and no further
Compensation shall be due or owing to the Employee. In such event the Employee
shall remain bound by the provisions of paragraphs 6 through 9 below.
6. Covenant Not to Compete. The Employee agrees to refrain from
"Competing" with the Company during the "Restricted Period," as such terms are
defined below; provided, however, that the provisions of this Paragraph 6 shall
not apply if the Employee's employment with the Company is terminated by the
Company without cause.
(a) The "Restricted Period" is defined as the period of time
commencing with the date hereof and continuing until the end of the
twelfth (12th) month following the termination of the Employee's
employment with the Company.
(b) "Competing" is defined as engaging directly or indirectly in
any one or more of the following activities (other than in furtherance
of the Employee's duties to the Company):
(i) Providing services, whether as an employee, agent,
consultant, independent contractor, stockholder, director,
member, officer, partner or otherwise, to any entity engaged in
the telecommunications business, but only to the extent the
nature of such services is substantially similar to those
performed by the Employee for or on behalf of the Company, and
such services pertain to a branch, division or office of such
entity which is conducting business in any one (1) or more of the
exchange or service areas in which the Company is then conducting
business (the "Restricted Territory").
(ii) 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 works for the Company at any time during the
Restricted Period, including, without way of limitation, all such
persons working for the Company in the
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<PAGE>
capacity of employee, agent, consultant or
independent contractor.
(c) The Employee hereby authorizes the Company to contact any
entity engaged in the telecommunications business for which the Employee
performs services during the Restricted Period for the purpose of
informing it of the terms and provisions of this Agreement.
(d) The Employee hereby acknowledges the reasonableness of the
restrictions contained in this Paragraph 6, including, but not limited
to, the geographic restrictions and duration of the restrictions.
Further, the Employee acknowledges that the Employee has sufficient
training and skills so as to obtain satisfactory employment
notwithstanding the restrictions contained in this Paragraph 6, so that
the enforcement of such restrictions would not prevent the Employee from
earning a satisfactory living.
7. Confidential Information. The Employee acknowledges that the Employee
will, through the Employee's employment with the Company, acquire, be exposed
to, or have access to material, data and information that constitute valuable,
confidential and proprietary information and trade secrets of the Company. Such
items may include, without limitation, methods of operation, demographic
information, customer and supplier lists, prospect lists, contract terms,
methods of pricing, production reports, profit and loss statements, rate and
incentive structures and other financial data, methods of marketing and
advertising, financing sources, business opportunities and other aspects of the
Company's business operations. The Employee shall not, directly or indirectly,
use, misuse, misappropriate, disclose, divulge or make known to any person,
firm, corporation, association, or other entity any such confidential and
proprietary information, except on behalf of the Company. In consideration of
the unique nature of the confidential and proprietary information, all of the
Employee's obligations pertaining to the confidentiality and non-disclosure
thereof shall remain in effect in perpetuity or until the Company has released
any such information into the public domain, in which case the Employee's
obligations hereunder shall cease with respect only to such information so
released.
8. Remedies. The Employee hereby acknowledges that any violation by the
Employee of the provisions of Paragraphs 6 or 7 will cause the Company
irreparable harm and agrees that the Company shall be entitled to an injunction
restraining any violation or attempted or threatened violation of this Agreement
(without any bond or other security being required), or any other appropriate
decree of specific
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<PAGE>
performance. Such remedy shall not be exclusive and shall be in addition to any
other remedy which the Company may have.
9. Miscellaneous.
(a) This Agreement sets forth the entire understanding between
the parties and all prior or contemporaneous written or oral agreements
with respect to the subject matter hereof are merged herein. This
Agreement cannot be amended except by a writing signed by both parties.
No waiver of any term or provision shall be deemed to be a waiver of any
subsequent breach of any term or provision hereof.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
(c) This Agreement shall be binding upon and inure to the benefit
of the parties hereto, their respective representatives, successors and
assigns; provided, however, this is an Agreement for the personal
services of the Employee and these services may only be provided by the
Employee. The Company may assign its rights and obligations hereunder to
any subsidiary or affiliate of the Company without the prior written
consent of the Employee.
(d) The provisions of this Agreement shall be separable and a
determination that any provision of this Agreement is either
unenforceable or void shall not affect the validity of any other
provision of this Agreement. Wherever possible all provisions shall be
interpreted so as not to be unenforceable and any court of competent
jurisdiction is authorized and directed by the parties to enforce any
otherwise unenforceable provision in part, to modify it, to enforce it
only to a degree and not fully, or otherwise to enforce that provision
only in a manner and to an extent, or for a shorter period of time, that
renders the provision valid or enforceable. The intent of the parties is
that this Agreement be enforceable and enforced to the maximum extent
possible after excising (or deeming excised) all invalid or
unenforceable provisions, whether or not the remaining provisions are
grammatically correct.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as by law provided as of the date first set forth above.
THE ORWELL TELEPHONE COMPANY
By:________________________________
________________, President
The Employee
(SEAL)
_____________________________
Name_______________________________
Address____________________________
___________________________________
___________________________________
___________________________________
Home Telephone No._________________
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<PAGE>
Exhibit 8.5
Opinion of Purchaser's Counsel
<PAGE>
UNDERWOOD KINSEY WARREN & TUCKER, P.A.
ATTORNEYS AT LAW
CHARLOTTE PLAZA BUILDING, SUITE 2020
201 SOUTH COLLEGE STREET
RUSSELL M. BLACK CHARLOTTE, NORTH CAROLINA 28244-2020
MARGO F. EVANS
RICHARD L. FARLEY
C. RALPH KINSEY, JR. TELEPHONE
SHIRLEY J. LINN 704-333-1200
JOHN H. NORTHEY III
FRANCIS M. PINCKNEY III
CARLTON A. SHANNON, JR. FACSIMILE
SUSAN L. SOWELL 704-377-9630
ROBERT B. TUCKER, JR.
WILLIAM E. UNDERWOOD, JR.
JOSEPH WARREN III
__________________, 1999
Shareholders of Orwell
Telephone Company
[Post Office Box 337
Orwell, OH 44076-0337]
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 The Orwell Telephone Company (the "Company") from Albert
Leonetti and Frank Leonetti, III, Co-Trustees of the Frank Leonetti, Jr. Trust
dated January 13, 1992, an Ohio sitused trust ("F. Leonetti Trust"), Albert
Leonetti, individually, an Ohio resident ("A. Leonetti"), Ann Pokorny, Trustee
under Declaration of Trust dated October 26, 1989, an Ohio sitused trust ("A.
Pokorny Trust") and Donald Pokorny, Trustee under Declaration of Trust dated
October 26, 1989, an Ohio sitused trust ("D. Pokorny Trust")(the F. Leonetti
Trust, A. Leonetti, the A. Pokorny Trust and the D. Pokorny Trust collectively
referred to hereinafter as "Seller"), pursuant to a Stock Purchase Agreement
entered into as of June 17, 1999 (with all Exhibits thereto, 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.
<PAGE>
Shareholders of Orwell
Telephone Company
_______________, 1999
Page 2
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 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
<PAGE>
Shareholders of Orwell
Telephone Company
_______________, 1999
Page 3
engaged, to own, lease and operate its properties, and to enter into and to
perform its obligations under the Purchase Agreement.
2. The execution and delivery of the Purchase 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 knowledge, MJD has given all notices to and has obtained from
all state and Federal regulatory authorities 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.
<PAGE>
Shareholders of Orwell
Telephone Company
_______________, 1999
Page 4
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 11.2
Escrow Agreement
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made as of
______________, 1999, between ALBERT LEONETTI AND FRANK LEONETTI, III,
CO-TRUSTEES OF THE FRANK LEONETTI, JR. TRUST DATED JANUARY 13, 1992, an Ohio
sitused trust ("F. Leonetti Trust"), ALBERT LEONETTI ("A. Leonetti"), a resident
of the State of Ohio, ANN POKORNY, TRUSTEE UNDER DECLARATION OF TRUST DATED
OCTOBER 26, 1989, an Ohio sitused Trust ("A. Pokorny Trust"), and DONALD
POKORNY, TRUSTEE UNDER DECLARATION OF TRUST DATED OCTOBER 26, 1989, an Ohio
sitused trust ("D. Pokorny Trust"), collectively with A. Leonetti, the F.
Leonetti Trust and the A. Pokorny Trust (the "Sellers")), MJD VENTURES, INC., a
Delaware corporation ("Purchaser") and The Middlefield Banking Company, a
________________ corporation (the "Escrow Agent").
STATEMENT OF PURPOSE
On or about June 17, 1999, the Sellers 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, the Sellers and
Purchaser agreed that Two Million Dollars ($2,000,000) (the "Escrow Funds") of
the total purchase price otherwise payable to the Sellers would be deposited
with Escrow Agent to secure the Sellers' 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 the
Company Capital Stock as provided in the Purchase Agreement, Purchaser shall
deliver to the Escrow Agent the sum of Two Million Dollars ($2,000,000) 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. Any taxes on any investment earnings on the Escrow Funds shall
be paid by Escrow Agent from the Escrow Account.
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 the Sellers until the distribution
thereof to the Sellers 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 earlier of June 30, 2000 or thirty (30) days after completion of
the financial audit and submission of a written report by Purchaser's
independent certified public accountants to Purchaser pertaining to the
Company's fiscal/taxable year ending December 31, 1999 (with the Purchaser to
give the Sellers prompt written notice of the completion of such report), except
that the Escrow Period shall be automatically extended as necessary to provide
for the disposition of any Claims filed by Purchaser with the Escrow Agent
during such 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 the Sellers, stating the factual basis for, and the
amount of, such entitlement ("Claim"). Within thirty (30) days following
such delivery of the Claim, the Sellers 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").
(b) In the event that the Sellers fail to timely deliver a Denial
to the Escrow Agent and Purchaser, 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
the Sellers as to all or any portion of a Claim, the Escrow
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<PAGE>
Agent shall immediately distribute to Purchaser an amount, if any, equal
to the portion of the Claim that the Sellers have not denied. If the
Denial does not state the amount or portion of the Claim denied, the
total amount of the Claim shall be deemed denied. The Sellers and the
Purchaser shall resolve their disagreement with respect to the denied
portion of the Purchaser's Claim pursuant to the negotiation-
mediation-arbitration provisions of Section 11.6 of the Purchase
Agreement (copy attached hereto as Exhibit A and made a part hereof).
Upon the resolution of such disagreement, the Escrow Agent shall
promptly take such action, if any, as is necessary for it to comply with
the terms of such resolution.
(d) The Escrow Agent shall proportionately divide and distribute
to the Sellers any portion of the Escrow Funds remaining in the Escrow
Agent's possession, after reservation for any and all still outstanding
Claims, immediately upon the expiration of the Escrow Period, 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 the Sellers as provided in a written joint instruction received
by the Escrow Agent from the Sellers and the Purchaser and signed by all
of them.
(f) Further, notwithstanding anything to the contrary herein,
Purchaser hereby expressly acknowledges and agrees that any
determination 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 and
this Escrow Agreement is subject to the provisions of Section 11.8 of
the Purchase Agreement pertaining to a "basket" on the Seller's
liability for indemnification with respect to the matters described in
Section 11.3 of the Purchase Agreement.
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 as provided in Section 11 hereof, 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 the Escrow
Agent from all obligations and responsibility with respect to the Escrow Funds
to which such order or judgment relates.
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<PAGE>
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 the Sellers 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 are 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 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.
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<PAGE>
(b) The Sellers 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 _________________________________ Dollars ($_______) to be paid
one-half by the Purchaser and one-half by the Sellers upon execution of this
Escrow Agreement and shall receive 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 one-half
by each of Purchaser and the Sellers.
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 or upon the earlier appointment, with the approval of the
Sellers 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 the Sellers 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 with any Ohio court of competent jurisdiction
and deposit the Escrow Funds with the registry or custody of the court, unless a
joint instruction is received by the Escrow Agent from the Sellers and the
Purchaser as to the disposition of the Escrow Funds.
-5-
<PAGE>
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.
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 the Sellers and the Purchaser. For all purposes
hereunder, the Sellers shall be required to act with unanimity, and A. Leonetti
shall act as spokesperson for the Sellers for purposes of all notices,
communications, decisions and determinations. 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 courier service or certified mail, return receipt requested,
addressed to the appropriate party at the address stated below:
If to the Sellers:
Albert Leonetti, Esq.
Tower East, Suite 400
20600 Chagrin Boulevard
Shaker Heights, OH 44122
Copy to:
Ulmer & Berne LLP
Ninth Floor, Bond Court Bldg.
1300 East Ninth Street
Cleveland, OH 44114-1583
ATTN: John C. Goheen, Esq.
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<PAGE>
If to Purchaser:
MJD Ventures, Inc.
521 East Morehead Street, Suite 520
Charlotte, NC 28202
ATTN: Mr. Eugene B. Johnson,
Executive Vice President
Copy to:
Underwood Kinsey Warren & Tucker, P.A.
201 S. College Street, Suite 2020
Charlotte, NC 28244-2020
ATTN: Shirley J. Linn, Esq.
If to Escrow Agent:
The Middlefield Banking Company
15985 East High Street
Post Office Box 35
Middlefield, OH 44062
Any notice sent by overnight messenger or courier service or hand
delivery shall be deemed made on the date received, and any notice sent by
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.
15. Headings. The headings in this Escrow Agreement are inserted for
convenience and identification 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
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<PAGE>
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 the Sellers and the Purchaser, except as in this Escrow Agreement
expressly provided.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement
to be executed as of the date first above written.
_____________________________(SEAL)
ALBERT LEONETTI, CO-TRUSTEE OF
THE FRANK LEONETTI, JR. TRUST
DATED JANUARY 13, 1992
______________________________(SEAL)
FRANK LEONETTI, III, CO-TRUSTEE OF
THE FRANK LEONETTI, JR. TRUST
DATED JANUARY 13, 1992
_____________________________(SEAL)
ALBERT LEONETTI, individually
_____________________________(SEAL)
ANN POKORNY, TRUSTEE UNDER
DECLARATION OF TRUST DATED
OCTOBER 26, 1989
______________________________(SEAL)
DONALD POKORNY, TRUSTEE UNDER
DECLARATION OF TRUST DATED
OCTOBER 26, 1989
MJD VENTURES, INC.
__________________________________
By: ______________________________
Its: _____________________________
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<PAGE>
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<PAGE>
Escrow Agent
THE MIDDLEFIELD BANKING COMPANY
By: _______________________________
Its: ______________________________
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<PAGE>
Exhibit 7.8
Noncompetition Agreements
<PAGE>
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (the "Agreement") is made effective as of
the _________ day of ______________, 1999 (the "Effective Date"), by and between
DONALD POKORNY, a resident of the State of Ohio ("Pokorny"), individually and in
his capacity as Trustee under Declaration of Trust dated October 26, 1989 ("D.
Pokorny Trust"), THE ORWELL TELEPHONE COMPANY, an Ohio corporation ("Orwell"),
ORWELL COMMUNICATIONS, INC., an Ohio corporation ("Communications") (Orwell and
Communications referred to collectively as "the Companies") 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 dated June
17, 1999 (the "Purchase Agreement") by and among MJD, Orwell, and Albert
Leonetti and Frank Leonetti, III, Co-Trustees of the Frank Leonetti, Jr. Trust
dated January 13, 1992 (the "F. Leonetti Trust"), Albert Leonetti, individually,
Donald Pokorny, Trustee under Declaration of Trust Dated October 26, 1989 (the
"D. Pokorny Trust"), and Ann Pokorny, Trustee under Declaration of Trust Dated
October 26, 1989 (the "A. Pokorny Trust") (collectively, the "Sellers"), MJD is
purchasing all of the outstanding capital stock of Orwell from the Sellers; and
WHEREAS, the D. Pokorny Trust is a principal shareholder of Orwell, and
Orwell is the sole shareholder of Communications, and Pokorny's knowledge of and
contacts within the Companies' relevant trade area are such that MJD is
unwilling to enter into the Purchase Agreement in the absence of Pokorny's entry
into, and full compliance with, this Agreement.
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, the receipt and sufficiency of
which are hereby acknowledged, Pokorny hereby undertakes and agrees as follows:
1. Pokorny will not, without the prior clear and affirmative advance
written approval of the Companies and MJD, directly or indirectly engage, or
attempt to engage, in any of the "Restricted Activities" with respect to the
"Restricted Businesses" within the "Restricted Territory" during the "Restricted
Period." The terms "Restricted Activities," "Restricted Businesses," "Restricted
<PAGE>
Territory" and "Restricted Period" are defined in Paragraphs 1(a) through 1(d)
below.
(a) Restricted Activities. The term "Restricted
Activities" shall mean direct or indirect participation by
Pokorny or an Affiliate of Pokorny in the:
(i) formation, ownership (excluding any ownership interest
of five percent (5%) or less of a publicly held company),
control, management or operation, in whole or in part, of any
entity which engages in one or more of the "Restricted
Businesses" within the "Restricted Territory"; and/or advising,
providing consulting services to, or otherwise assisting such
entity in the analysis or development of business opportunities
and/or the solicitation of customers with respect to one or more
of the "Restricted Businesses" within the "Restricted Territory";
provided, however, that nothing herein shall prohibit Pokorny or
an Affiliate of Pokorny from entering into agreements or
otherwise doing business with a Person which has customers within
the Restricted Territory, so long as neither Pokorny nor his
Affiliate, through such agreements or business transactions,
engages in one or more of the Restricted Activities within the
Restricted Territory; or
(ii) employment, engagement, solicitation for potential
employment or engagement, or assistance in the employment,
engagement or solicitation for potential employment or
engagement, by any third party, of any person who, on the
Effective Date or thereafter, is employed or engaged as an
employee of any of the Companies or MJD. Notwithstanding anything
in this Agreement to the contrary, the restrictions set forth in
this subparagraph 1(a)(ii) shall apply regardless of whether such
third party is located inside or outside of the Restricted
Territory.
(b) Restricted Businesses. The term "Restricted Businesses" shall
encompass the offering, marketing, sale or provision of any
telecommunications, enhanced or information service within the
Restricted Territory to any existing or future customer of the
Companies. The prohibited telecommunications, enhanced or information
services include the following named services (whether offered on a
retail or wholesale basis, and whether provided on a facilities-based or
resale basis), plus any existing or future service which becomes capable
of substitution for one or more of the named services during the
Restricted Period:
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<PAGE>
(i) Wireline local exchange and exchange access services;
(ii) Wireless local loop and access services;
(iii) Wireless mobility services (including analog and
digital cellular, PCS, SMR, satellite and paging services);
(iv) Wireline or wireless Internet access services;
(v) Competitive local exchange carrier services;
(vi) Interstate and intrastate toll services;
(vii) Video conferencing and conference calling services;
(viii) Voice and electronic mail services;
(ix) Facsimile and data services;
(x) Directory and operator assistance services;
(xi) Prepaid calling cards and other prepaid
telecommunications and information services;
(xii) Customer premises equipment and inside wiring
maintenance services;
(xiii) Local multipoint distribution service; and
(xiv) Cable television, wireless cable, open video system,
and other multichannel video programming distribution services.
For purposes of this Agreement, any Person shall be deemed an
existing or future customer of the Companies if such Person has a
business or residence located within the Restricted Territory.
(c) Restricted Territory. The term "Restricted Territory" shall
include any and all locations which as of the Effective Date are within
any of the exchange areas of the Companies, as defined by the Public
Utilities Commission of Ohio.
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<PAGE>
(d) Restricted Period. The term "Restricted Period" shall be a
period of five (5) consecutive years, commencing with the Effective
Date.
(e) Affiliate. The term "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.
(f) Person. The term "Person" shall mean any corporation,
partnership, joint venture, organization, entity, authority or natural
person, together with any and all heirs, successors, representatives and
assigns thereof.
2. Pokorny shall not, directly or indirectly, at any and all times
hereafter, use, divulge or make available to any Person, any confidential
information or any documents, files or other papers concerning the business of
the Companies, except for such disclosure which is consented to in writing in
advance by MJD, or otherwise required by applicable law or regulations.
Information shall not be considered confidential information within the scope of
protection of this Paragraph 2, however, if it is in the public domain other
than through a wrongful disclosure. However, information shall not be considered
to be in the public domain because it is known to third parties who attempt to
maintain the confidentiality of it or otherwise do not publish such information.
3. In the event of any breach by Pokorny of any provision contained
herein, the Restricted Period shall, to the extent permitted by law, be extended
by any period of time during which (i) such breach continues, or (ii) there is
pending litigation in which MJD is seeking in good faith to enforce the terms of
this Agreement.
4. 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.
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<PAGE>
No narrowed construction, court-modification or invalidation of any provision
hereof shall affect the construction, legality, validity or enforceability of
any other provision hereof.
5. Pokorny acknowledges that the Companies and MJD will be irreparably
damaged if the provisions hereof are not specifically enforced, and agrees that
either or both of the Companies and/or MJD shall be entitled to an injunction
restraining any violation or attempted violation of this Agreement, 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 Companies and/or MJD may
have.
6. 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 Companies and MJD and their successors and assigns, and the provisions
hereof shall apply to Pokorny, his successors and assigns. Further, the parties
hereto agree and acknowledge that the provisions hereof shall apply to the D.
Pokorny Trust and its successors and/or assigns and any of its distributees or
beneficiaries who shall receive any of the Trust's local multipoint distribution
service licenses. The terms hereof may not be modified or terminated except by a
writing signed by the Companies, MJD and Pokorny.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement
effective as of the date first set forth above.
______________________________(SEAL)
DONALD POKORNY
______________________________(SEAL)
DONALD POKORNY, TRUSTEE UNDER
DECLARATION OF TRUST DATED
OCTOBER 26, 1989
THE ORWELL TELEPHONE COMPANY
ATTEST:
_____________________________ _____________________________
By: _________________________ By: _________________________
Title: ______________________ Title: ______________________
(Corporate Seal)
ORWELL COMMUNICATIONS, INC.
ATTEST:
_____________________________ _____________________________
By: _________________________ By: _________________________
Title: ______________________ Title: ______________________
(Corporate Seal)
MJD VENTURES, INC.
ATTEST:
_____________________________ _____________________________
By: _________________________ By: _________________________
Title: ______________________ Title: ______________________
(Corporate Seal)
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<PAGE>
Exhibit 2.17
STOCK PURCHASE AGREEMENT
among
MJD VENTURES, INC.,
E. B. FITZGERALD, III,
E. B. FITZGERALD, IV,
ANN F. BROWN,
THOSE OTHER SHAREHOLDERS LISTED ON SCHEDULE 2.7 HERETO
and
PEOPLES MUTUAL TELEPHONE COMPANY
dated as of December 10, 1999
<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 Post-Closing Adjustments to the Adjusted Purchase Price....... 3
Section 1.4 Excluded Assets and Liabilities................................ 4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS.................................... 4
Section 2.1 Corporate Organization......................................... 4
Section 2.2 Authorization.................................................. 5
Section 2.3 No Violation................................................... 5
Section 2.4 Subsidiaries and Investments................................... 5
Section 2.5 Stock Record Book.............................................. 6
Section 2.6 Corporate Books................................................ 6
Section 2.7 Title to Stock................................................. 6
Section 2.8 Options and Rights............................................. 7
Section 2.9 Financial Statements........................................... 7
Section 2.10 Employees...................................................... 8
Section 2.11 Absence of Certain Changes..................................... 9
Section 2.12 Contracts...................................................... 10
(a) Generally............................................................ 10
(b) Compliance........................................................... 11
Section 2.13 True and Complete Copies....................................... 11
Section 2.14 Title and Related Matters...................................... 12
(a) Owned Property, Liens................................................ 12
(b) Leased Property...................................................... 12
(c) Regulatory/Zoning Compliance......................................... 12
(d) Utilities............................................................ 13
(e) Condition............................................................ 13
Section 2.15 Litigation..................................................... 13
Section 2.16 Tax Matters.................................................... 13
(a) Generally............................................................ 13
(b) Good Faith........................................................... 14
(c) Claims............................................................... 14
(d) Course of Business................................................... 15
(e) Withholdings......................................................... 15
(f) Partnerships......................................................... 15
(g) Accounting Method Adjustments........................................ 15
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<PAGE>
(h) Tax Exemptions....................................................... 15
(i) Tax Return Reviews................................................... 15
(j) Power of Attorney.................................................... 15
(k) True and Complete Copies............................................. 15
Section 2.17 Bank and Brokerage Accounts.................................... 15
Section 2.18 Compliance with Applicable Laws, Regulations and Orders........ 16
Section 2.19 Employee Benefit Plans......................................... 16
Section 2.20 Intellectual Property.......................................... 19
Section 2.21 Environmental Matters.......................................... 20
(a) Generally............................................................ 20
(b) Property............................................................. 20
(c) Transportation. .................................................... 20
(d) Notification of Release.............................................. 21
(e) Liens................................................................ 21
(f) Site Assessments..................................................... 21
Section 2.22 Capital Expenditures and Investments........................... 21
Section 2.23 Dealings with Affiliates....................................... 21
Section 2.24 Insurance...................................................... 22
Section 2.25 Commissions.................................................... 22
Section 2.26 Permits and Reports............................................ 22
Section 2.27 Absence of Undisclosed Liabilities............................. 23
Section 2.28 Year 2000 Compliance........................................... 24
Section 2.29 Disclosure..................................................... 24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................................. 24
Section 3.1 Corporate Organization......................................... 24
Section 3.2 Authorization.................................................. 25
Section 3.3 No Violation................................................... 25
Section 3.4 Investment Intent.............................................. 25
ARTICLE IV COVENANTS OF THE SELLERS AND THE COMPANY......................................... 26
Section 4.1 Regular Course of Business..................................... 26
(a) Generally............................................................ 26
(b) Compensation......................................................... 26
(c) Insurance............................................................ 26
(d) Claims............................................................... 26
(e) Supplement........................................................... 26
Section 4.2 Amendments..................................................... 26
Section 4.3 Capital Changes................................................ 27
Section 4.4 Dividends...................................................... 27
Section 4.5 Capital Expenditures; Transactions with Affiliates............. 27
Section 4.6 Borrowing...................................................... 27
Section 4.7 Property....................................................... 27
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<PAGE>
Section 4.8 Other Commitments.............................................. 27
Section 4.9 Interim Financial Information, Investment K-1s............... 27
Section 4.10 Consents and Authorizations.................................... 28
Section 4.11 Access......................................................... 28
Section 4.12 Notice of Transfer............................................. 28
Section 4.13 Payment of Stamp Tax........................................... 28
Section 4.14 Disclosure..................................................... 28
Section 4.15 Cooperation with Purchaser..................................... 29
ARTICLE V COVENANTS OF THE PURCHASER....................................................... 29
Section 5.1 Consents and Authorizations.................................... 29
Section 5.2 Employees...................................................... 29
ARTICLE VI OTHER AGREEMENTS................................................................. 29
Section 6.1 Agreement to Defend............................................ 29
Section 6.2 Further Assurances............................................. 30
Section 6.3 Consents....................................................... 30
Section 6.4 No Solicitation or Negotiation................................. 30
Section 6.5 No Termination of the Obligations by Subsequent Dissolution.... 30
Section 6.6 Public Announcements........................................... 31
Section 6.7 Records and Information........................................ 31
(a) Retention of Records................................................. 31
(b) Access to Information................................................ 31
(c) Delivery of Corporate Records........................................ 32
(d) Witnesses............................................................ 32
Section 6.8 Insurance Policies and Claims Administration................... 32
(a) Insurance Coverage Prior to the Closing Date......................... 32
(b) Insurance Coverage After the Closing Date............................ 33
Section 6.9 Other Tax Matters.............................................. 33
(a) Tax Returns.......................................................... 33
(b) Information.......................................................... 34
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER................................... 34
Section 7.1 Representations and Warranties................................. 34
Section 7.2 Consents and Approvals......................................... 34
Section 7.3 No Material Adverse Change..................................... 35
Section 7.4 No Proceeding or Litigation.................................... 35
Section 7.5 Secretary's Certificate........................................ 35
Section 7.6 Certificates of Good Standing.................................. 35
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<PAGE>
Section 7.7 Opinion of Sellers' Counsel.................................... 35
Section 7.8 Continuation of E. Fitzgerald, III Employment Agreement........ 36
Section 7.9 Noncompetition Agreement....................................... 36
Section 7.10 A. Brown Employment Agreement.................................. 36
Section 7.11 Resignations................................................... 36
Section 7.12 Other Documents................................................ 36
Section 7.13 Liens.......................................................... 36
Section 7.14 Delivery of Minute Books....................................... 36
Section 7.15 Delivery of Financial Statements............................... 36
Section 7.16 Amendment to Lease Agreements.................................. 37
Section 7.17 Renewal of Franchises.......................................... 37
Section 7.18 Completion of Natal Project.................................... 37
Section 7.19 Completion of Environmental Actions............................ 37
ARTICLE VIII CONDITIONS TO THE OBLIGATIONSOF THE SELLERS..................................... 37
Section 8.1 Representations and Warranties................................. 37
Section 8.2 Consents and Approvals......................................... 38
Section 8.3 No Proceeding or Litigation.................................... 38
Section 8.4 Secretary's Certificate........................................ 38
Section 8.5 Opinion of Purchaser's Counsel................................. 38
Section 8.6 Restated Employment Agreement.................................. 38
Section 8.7 Noncompetition Agreement....................................... 38
Section 8.8 A. Brown Employment Agreement.................................. 38
Section 8.9 Amendment to Lease Agreements.................................. 38
ARTICLE IX CLOSING......................................................................... 38
Section 9.1 Closing........................................................ 38
Section 9.2 Closing Date Payment and Receipt of Shares..................... 39
ARTICLE X TERMINATION AND ABANDONMENT..................................................... 39
Section 10.1 Methods of Termination......................................... 39
(a) Mutual Consent....................................................... 39
(b) Sellers' Failure to Perform.......................................... 39
(c) Purchaser's Failure to Perform....................................... 40
(d) Failure to Close by March 31, 2000................................... 40
(e) Material Adverse Change.............................................. 40
(f) Remedies............................................................. 40
Section 10.2 Procedure Upon Termination..................................... 40
(a) Return of Records.................................................... 40
(b) Confidentiality...................................................... 41
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<PAGE>
ARTICLE XI SURVIVAL OF TERMS; INDEMNIFICATION.............................................. 41
Section 11.1 Survival; Limitations.......................................... 41
Section 11.2 Indemnification by the Sellers................................. 41
(a) Misrepresentation or Breach.......................................... 42
(b) Taxes................................................................ 42
(c) Other Claims......................................................... 42
(d) Related Expenses..................................................... 42
Section 11.3 Indemnification by the Purchaser............................... 42
(a) Misrepresentation or Breach.......................................... 42
(b) Taxes................................................................ 42
(c) Other Claims......................................................... 43
(d) Related Expenses..................................................... 43
Section 11.4 Third Party Claims............................................. 43
(a) Generally............................................................ 43
(b) Counsel.............................................................. 44
Section 11.5 Other Claims................................................... 44
Section 11.6 Continued Liability for Indemnity Claims....................... 46
Section 11.7 Basket Amount.................................................. 46
(a) Indemnification by the Sellers....................................... 46
(b) Indemnification by the Purchaser..................................... 46
(c) Aggregation.......................................................... 46
Section 11.8 Right of Offset................................................ 46
Section 11.9 Escrow of Liquid Assets........................................ 47
ARTICLE XII GENERAL PROVISIONS.............................................................. 48
Section 12.1 Amendment and Modification..................................... 48
Section 12.2 Waiver......................................................... 48
Section 12.3 Certain Definitions............................................ 48
Section 12.4 Notices........................................................ 53
Section 12.5 Assignment..................................................... 54
Section 12.6 Governing Law.................................................. 54
Section 12.7 Counterparts................................................... 54
Section 12.8 Headings....................................................... 54
Section 12.9 Entire Agreement............................................... 54
Section 12.10 No Benefit..................................................... 55
Section 12.11 Delays or Omissions............................................ 55
Section 12.12 Severability................................................... 55
Section 12.13 Expenses....................................................... 55
Section 12.14 Time of the Essence............................................ 55
Section 12.15 Injunctive Relief.............................................. 56
</TABLE>
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<PAGE>
SCHEDULES
1.4 Excluded Assets and Liabilities
2.3 No Violations
2.4 Subsidiaries and Investments
2.5 Capital Stock
2.6 Corporate Books
2.7 List of Shareholders/No Liens on Shares
2.10 Employees
2.11 Certain Changes
2.12 Contracts
2.14(a) Owned Property, Liens
2.14(b) Leased Property
2.14(c) Regulatory/Zoning Compliance
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
2.25 Brokerage Commission
2.26 Permits
2.27 Absence of Undisclosed Liabilities/Corporate Debt
3.3 Consents and Authorizations of Purchaser
4.9 Interim Financial Information
4.14 Article IV Disclosure Statement
EXHIBITS
7.7 Opinion of Sellers' Counsel
7.8 Restated Employment Agreement
7.9 Noncompetition Agreement
7.10 A. Brown Employment Agreement
8.5 Opinion of Purchaser's Counsel
11.9 Escrow Agreement
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<PAGE>
AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of the
10th day of December, 1999, among MJD VENTURES, INC., a Delaware corporation
(the "PURCHASER"), E. B. FITZGERALD, III, a Virginia resident ("E. FITZGERALD,
III"), E. B. FITZGERALD, IV, a Virginia resident ("E. FITZGERALD, IV"), ANN F.
BROWN, a Virginia resident ("A. BROWN"), those other shareholders listed on
Schedule 2.7 hereto (collectively, the "REMAINING SHAREHOLDERS") (such Remaining
Shareholders, together with E. Fitzgerald, III, E. Fitzgerald, IV and A. Brown
referred to individually hereinafter as a "SELLER" and collectively as the
"SELLERS", with the term "Sellers" including any and all of such Remaining
Shareholders, E. Fitzgerald, III, E. Fitzgerald, IV and A. Brown), and PEOPLES
MUTUAL TELEPHONE COMPANY, a Virginia corporation ("PEOPLES" or the "COMPANY").
RECITALS
WHEREAS, E. Fitzgerald, III owns 24 shares of $25.00 par value common stock
of the Company, E. Fitzgerald, IV owns 3,463 shares of $25.00 par value common
stock of the Company, A. Brown owns 3,296 shares of $25.00 par value common
stock of the Company, and the Remaining Shareholders collectively own 3,049
shares of $25.00 par value common stock of the Company, such combined 9,832
shares constituting all of the issued and outstanding shares of capital stock of
the Company (the "PEOPLES TELEPHONE CAPITAL STOCK");
WHEREAS, Peoples owns one (1) share of no par common stock of Peoples
Mutual Services Company, a Virginia corporation ("PEOPLES SERVICES"),
constituting all of the issued and outstanding shares of capital stock of
Peoples Services (the "PEOPLES SERVICES CAPITAL STOCK")(any and all shares,
options, warrants, rights and interests, legal or equitable, in or with respect
to the Peoples Telephone Capital Stock and/or the Peoples Services Capital Stock
hereinafter referred to collectively as the "SHARES").
WHEREAS, Peoples is an operating telephone company that provides wireline
telecommunications services in four (4) exchanges in the State of Virginia
(Gretna, Hurt, Renan and Sandy Level), serving the communities of Gretna,
Brights, Pittsville, Zion, Hurt, Motley, Grit, Renan, Sandy Level and Lakeside,
with approximately 7,794 access lines (the "Exchange"); and Peoples operates as
a reseller for a local internet service provider, currently providing service to
approximately 600 subscribers (collectively, the businesses of Peoples, Peoples
Services and all of Peoples' other
<PAGE>
subsidiaries, if any, are hereinafter referred to as the "COMMUNICATIONS
BUSINESS", the "BUSINESS" or the "BUSINESS");
WHEREAS, the Sellers desire 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:
1. PURCHASE OF STOCK
a. PURCHASE AND SALE. At the Closing Date, on the terms and subject to
the conditions set forth in this Agreement, the Sellers agree to sell to
the Purchaser, and the Purchaser agrees to purchase from the Sellers, the
Shares.
b. PURCHASE PRICE.
i. The Purchaser shall purchase the Shares of Peoples Telephone
Capital Stock from the Sellers, at a price per share of Peoples
Telephone Capital Stock (the "PRICE PER SHARE") equal to the Adjusted
Purchase Price (as defined below) divided by 9,832 (being the number
of shares of Peoples Telephone Capital Stock issued and outstanding as
of the Closing Date). The Adjusted Purchase Price shall be the sum of
Thirty-Five Million and No/100 Dollars ($35,000,000) minus the
Company's Total Long Term Debt as of the Closing Date, (such sum being
the "BASE PURCHASE Price"), plus or minus "NET WORKING CAPITAL" as
defined in accordance with Section 1.2(b) below, and plus the
"SECURITIES VALUE" as defined in accordance with Section 1.2(c) below.
The Adjusted Purchase Price shall be payable in accordance with this
Article I, subject to the provisions of Section 9.2 hereof.
ii. The Base Purchase Price shall be adjusted by adding to it or
subtracting from it, as the case may be, the Net Working Capital on
the Closing Date. For the purposes hereof, Net Working Capital shall
be defined as the Company's current assets minus current liabilities,
computed in accordance with GAAP, consistently applied (on a
consolidated basis). To the extent the Company's
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<PAGE>
current assets exceed the Company's current liabilities on the Closing
Date, the Base Purchase Price shall be increased, dollar for dollar.
To the extent the Company's current liabilities exceed the Company's
current assets on the Closing Date, the Base Purchase Price shall be
decreased, dollar for dollar. The Net Working Capital of the Company
shall be based on an estimated closing balance sheet of the Company,
which shall be delivered to the Purchaser at least ten (10) days prior
to the Closing Date, prepared in good faith by Johnson and Dooley,
Certified Public Accountants, LLP, subject to the Purchaser's review
and approval thereof, which shall not be unreasonably withheld.
iii. The Base Purchase Price shall additionally be adjusted by
adding to it the "Securities Value," determined as follows:
(1) The value of all shares of capital stock of Illuminet
Holdings, Inc. ("ILLUMINET")(NASDAQ Symbol "ILUM") owned by the
Company as of the Closing Date shall be determined by multiplying
the total number of such shares by the average closing price of a
share of Illuminet capital stock on the NASDAQ National Market
for the twenty (20) day period ending ten (10) days prior to the
Closing Date; and
(2) The value of all shares of Class A Common Stock of
Trigon Healthcare, Inc. ("TRIGON")(NYSE Symbol "TGH") owned by
the Company as of the Closing Date shall be determined by
multiplying the total number of such shares by the average
closing price of a share of Trigon Class A Common Stock on the
New York Stock Exchange for the twenty (20) day period ending ten
(10) days prior to the Closing Date.
(iv) The sum of the Base Purchase Price, plus or minus the Net
Working Capital, plus the Securities Value, all as determined above,
shall be referred to herein as the "ADJUSTED PURCHASE PRICE."
c. POST-CLOSING ADJUSTMENTS TO THE ADJUSTED PURCHASE PRICE. The
Adjusted Purchase Price payable by the Purchaser to the Sellers on the
Closing Date pursuant to Sections 1.2 and 9.2 hereof may be adjusted as
follows. Within ninety (90) days after the Closing Date, the Purchaser
shall prepare and
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submit to the Sellers a Closing balance sheet for the Company as of the
close of business on the Closing Date (the "CLOSING BALANCE SHEET"), which
shall be prepared in accordance with GAAP and consistent with the Company's
past practices, and mutually acceptable to the Sellers and the Purchaser
and their respective independent public accountants. Upon the Sellers' and
the Purchaser's mutual agreement as to the form and content of the Closing
Balance Sheet, the amount of the Adjusted Purchase Price shall be increased
or decreased, as the case may be, by the difference, if any, between the
Net Working Capital and the Total Long Term Debt determined in good faith
as of the Closing Date and the Net Working Capital and the Total Long Term
Debt as such is determined based on the Closing Balance Sheet. If, as a
result of the foregoing post-closing adjustment, the Adjusted Purchase
Price is increased, the Purchaser shall pay the Sellers, in accordance with
their percentage interests shown on Schedule 2.5 hereto relative to all
Sellers (the "PERCENTAGE INTERESTS"), 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 Adjusted Purchase Price is decreased, the
Sellers shall refund to the Purchaser, in accordance with their Percentage
Interests, 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.
d. EXCLUDED ASSETS AND LIABILITIES. Notwithstanding that this
Agreement relates to the purchase of capital stock from the Sellers by the
Purchaser, which results in the Company retaining any and all of its assets
and liabilities, it is understood and agreed that the Sellers 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 1.4 hereto (the "EXCLUDED ASSETS"). Further, the Sellers
shall assume any and all liabilities set forth on Schedule 1.4 hereto (the
"EXCLUDED LIABILITIES"). The Purchaser agrees that it shall cause the
Company to execute, and the Sellers agree 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 the Sellers and to assign and/or
transfer the Excluded Liabilities to the Sellers. 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
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Business as provided herein from and after December 31, 1998 through the
Closing Date.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers 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 any or all of the Sellers and the Company), with
respect to each of Peoples, Peoples Services 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 Peoples, Peoples Services or any of their
subsidiaries or Affiliates then the Sellers must so disclose any such untruth):
a. 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 the state
set forth with respect to such Seller on Schedule 2.7 hereto. 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
bylaws (and all amendments thereto) as presently in effect have been
delivered to the Purchaser.
b. AUTHORIZATION. The Sellers and the Company each have 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 shareholders) 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 Sellers and the Company enforceable
against each such party in accordance with its terms, subject to equitable
considerations and the effect
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of bankruptcy and other laws affecting the rights of creditors generally.
The Sellers will, at the Closing, have full power and authority to deliver
the Shares and the certificates evidencing the Shares to the Purchaser free
and clear of all Liens as provided for herein.
c. 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 Sellers and the Company
does 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 bylaws of 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 Sellers or
the Company or any of their properties are subject, or (iv) any Contract to
which the Sellers or the Company or any of their properties are subject.
The Sellers 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.
d. SUBSIDIARIES AND INVESTMENTS. Except as set forth on 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, nor shall the transactions contemplated by this Agreement result in
a violation of, or require any authorization, consent, approval, exemption
or other action by or notice to 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
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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 subsidiaries or investments 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 or director of any such
investment entity. Except as set forth on Schedule 2.4 hereto, the Company
is not a party to any Partnership, Operating, 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 July 31, 1996.
e. 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 the Company and the Sellers own all of the
outstanding capital stock of the Company. Peoples is the true and lawful
owner of all of the outstanding capital stock of Peoples Services. Schedule
2.5 sets forth the total number of authorized and issued shares of capital
stock for each of Peoples and Peoples Services.
f. 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 of each of its subsidiaries since
incorporation. A true and complete list of the directors and officers of
the Company and of each of its subsidiaries as of the date hereof is set
forth on Schedule 2.6.
g. 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 with respect to the Company or
any of its subsidiaries. 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 Virginia, are owned
by the
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Sellers and will be sold pursuant hereto free and clear of all Liens. Upon
payment of the Adjusted Purchase Price to the Sellers in accordance with
this Agreement, the Sellers 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 Sellers to the Purchaser at the Closing will be sufficient
to transfer the Sellers' entire interest, and all of the interests, legal
and beneficial, of Sellers and of all other Persons, in and to the Shares
and thereby in the Peoples Services 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, except as specifically set forth on the Financial Statements or on
Schedule 2.7 hereto, none have been made to any shareholder of the Company
or to any of the Sellers since at least December 31, 1996.
h. 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.
i. FINANCIAL STATEMENTS. The Sellers have delivered to the Purchaser
correct and complete copies of (i) the audited consolidated balance sheets
of the Company as of December 31, 1997 and December 31, 1998 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") and (ii) the unaudited
balance sheet of the Company as of the period ending July 31, 1999 and the
related statement of income for such period then ended (the foregoing
unaudited statements, with all monthly unaudited statements delivered
hereafter, the "UNAUDITED FINANCIAL STATEMENTS"). The Financial Statements
have been audited without qualification by Johnson and Dooley, Certified
Public Accountants, LLP, 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
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an audit. Since December 31, 1998 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. On or before March 1, 2000, the Sellers shall deliver to the
Purchaser correct and complete copies of the audited consolidated balance
sheets of the Company as of December 31, 1999, and the related statements
of income, cash flow and retained earnings for the fiscal year reporting
period then ended, together with all notes and schedules thereto, at which
time such balance sheet and statements shall thereafter be included within
the definition of "Financial Statements" for all purposes hereunder.
j. EMPLOYEES.
i. 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 Contract regarding the
terms of service and the rate and basis for total compensation of such
persons.
ii. Except as set forth on Schedule 2.10 hereto, 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. No contracts or
provisions exist that would obligate the Company to pay any amounts to
any Person upon the change of control of the Company.
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iii. 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 does
the Sellers or the Company know of any activities or proceedings of
any labor union to organize any such employees. The Company has
furnished to the 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.
iv. Except as set forth on 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 Sellers' or Company's knowledge, threatened,
against or affecting the Company, and the Company has not experienced
any strike, material slowdown 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,
the Department of Labor 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 the Sellers and Company, no
such investigation is in progress.
k. ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule 2.11,
since December 31, 1998, 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) theft, damage, destruction, removal or loss of assets or properties,
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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 any redemption of the
Shares, (d) increase in the compensation payable to or to become payable by
the Company to its employees, officers, directors, consultants or
independent contractors except in the ordinary course of business, (e)
entry by the Company into any Contract not in the ordinary course of
business, including, without limitation, any borrowing or capital
expenditure, (f) change in accounting methods or principles used by the
Company, except for any such change which is necessitated by a change in
GAAP, or required by the FCC, VSCC or RTB (which such changes shall be set
forth on Schedule 2.11 hereto), (g) operation of the Company's business
other than in the ordinary course, (h) sale, assignment or transfer of any
assets or properties of the Company except in the ordinary course of
business, (i) amendment or termination of any of the Company's Permits or
Contracts, (j) waiver or release of any material right or claim of the
Company, (k) labor dispute or union activity which affects the operation of
the Company, and (l) agreement by either the Sellers or the Company to take
any of the actions described in the preceding clauses (a) through (k),
except as contemplated by this Agreement.
l. CONTRACTS.
i. GENERALLY. Except as listed on Schedule 2.12, the Company is
not a party to any Contract relating to:
(1) Bonus, pension, profit sharing, retirement, stock
option, employee stock purchase or other plans providing for
deferred compensation.
(2) Collective bargaining agreements or any other Contract
with any labor union.
(3) Hospitalization or medical insurance or other welfare
benefit plans or practices.
(4) Loans to its employees, officers, directors,
shareholders or Affiliates.
(5) 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
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Company, including, but not limited to, any Contract with respect
to the Company's indebtedness.
(6) A guarantee of any obligation.
(7) The ownership, lease (whether as lessee or lessor) or
operation of any property, real or personal.
(8) Intangible property (including Proprietary Rights).
(9) Warranties with respect to its services rendered or its
products sold or leased.
(10) Registration or preemptive rights with respect to any
securities.
(11) Prohibitions preventing it from freely engaging in any
business.
(12) The purchase, acquisition, disposition or supply of
inventory and/or other property and assets.
(13) Employees, independent contractors, consultants, or
other agents.
(14) Sales, commissions, advertising or marketing.
(15) Unconditional purchase or payment obligations.
(16) Agreements between the Sellers and customers of the
Business.
(17) Agreements pertaining to the providing of internet
access or service by the Company.
(18) Leases, licenses, easements, rights of way, pole
attachment agreements, license agreements for joint use of poles
and other agreements regarding property rights to earth stations,
utility poles, real property, fixtures and other similar items
used in the operation of the Business.
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(19) The grant or franchise of telephone franchise rights.
(20) Any investment or subsidiary of the Company, including,
but not limited to, those shown on Schedule 2.4 hereto.
(21) 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).
ii. COMPLIANCE. The Company 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
to which it is subject (including, without limitation, those required
to be disclosed on Schedule 2.12). Except as disclosed on 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 on 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.
m. TRUE AND COMPLETE COPIES. The Sellers 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
true and complete records kept of such companies.
n. TITLE AND RELATED MATTERS.
i. OWNED PROPERTY, LIENS. Set forth on Schedule 2.14(a) is a
description of all real and personal property owned or used by the
Company. The Company has valid and marketable title to all such
property, free and
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clear of all Liens, except Permitted Liens. All properties used in the
Company's business operations as of July 31, 1999 are reflected in the
Unaudited 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. Sellers and the Company 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.
ii. LEASED PROPERTY. Set forth on Schedule 2.14(b) is a
description of all real and personal property leased by the Company.
Except as otherwise set forth on 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 Sellers 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 on
Schedule 2.14(b), neither the Sellers 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 current market rates. The
Sellers have delivered to the Purchaser, with respect to any leased
real or personal property, true and complete copies of all such leases
and all amendments, supplements thereto or memoranda thereof.
iii. REGULATORY/ZONING COMPLIANCE. Except as set forth on
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 material
applicable restrictions, building ordinances and zoning ordinances and
all Regulations of the applicable health and fire departments. No
alteration, repair,
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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-nine (129) 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 Sellers' 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.
iv. 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 in
the same manner and to the same extent as at the Closing Date.
v. CONDITION. Except as set forth on Schedule 2.14(e), since
December 31, 1998, 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
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necessary for the Company to conduct its Business as now conducted.
o. LITIGATION. Except as set forth on Schedule 2.15, there is (a) no
Claim pending or, to the Sellers' 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.
p. TAX MATTERS
i. GENERALLY. Except as set forth on Schedule 2.16, Peoples,
Peoples Services 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 or will be as of the Closing
Date fully paid or reserved against on the Unaudited Financial
Statements and on the books of Peoples, Peoples Services and all their
subsidiaries, as appropriate, in accordance with GAAP. All Taxes which
are required to be withheld or collected by Peoples, Peoples Services
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 Peoples, Peoples Services or 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 on Schedule
2.16, neither Peoples, Peoples Services 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 Peoples, Peoples Services
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 Peoples, Peoples Services or any of their
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subsidiaries was a member of the affiliated group. Neither Peoples,
Peoples Services nor any of their subsidiaries has any liability for
the unpaid Taxes of any Person 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.
ii. 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.
iii. CLAIMS. Except as disclosed on 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 Peoples, Peoples
Services and their subsidiaries, which information was derived from
the books and records of the Company.
iv. 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 Peoples, Peoples Services or any of their
subsidiaries to any period (or portion thereof) ending after the
Closing Date.
v. 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 Peoples, Peoples Services and all
of their subsidiaries, as appropriate.
vi. PARTNERSHIPS. Except as disclosed on Schedule 2.16, the
Company is not subject to any joint venture,
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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.
vii. ACCOUNTING METHOD ADJUSTMENTS. Except as disclosed on
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.
viii. 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 treated as the owner of leased property
for Federal income tax purposes.
ix. 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 on Schedule 2.16.
x. POWER OF ATTORNEY. Except as set forth on 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.
xi. TRUE AND COMPLETE COPIES. The Sellers and the Company have
delivered to the Purchaser true and complete copies of all Tax Returns
filed by the Company with respect to its 1994, 1995, 1996, 1997 and
1998 fiscal years.
q. BANK AND BROKERAGE ACCOUNTS. Set forth on 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.
r. COMPLIANCE WITH APPLICABLE LAWS, REGULATIONS AND ORDERS. The
Company has been and is presently in material RS compliance with all laws,
ordinances, codes, rules,
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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.
s. EMPLOYEE BENEFIT PLANS.
i. Set forth on Schedule 2.19 hereto is a true and complete list
of:
(1) 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 Sellers are required to make contributions ("PENSION
BENEFIT PLAN"); and
(2) each employee welfare benefit plan, as defined in
Section 3(1) of ERISA, maintained by the Company or to which the
Company or the Sellers are 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 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.
ii. With respect to the ERISA Plans, except as set forth on
Schedule 2.19:
(1) there is no ERISA Plan which is a "multiemployer" plan
as that term is defined in Section 3(37) of ERISA ("MULTIEMPLOYER
PLAN");
(2) no event has occurred or (to the knowledge of the
Sellers 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;
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(3) 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
(4) no ERISA Plan is liable for any Federal, state, local or
foreign Taxes.
iii. Each Pension Benefit Plan intended to be qualified under
Section 401(a) of the Code:
(1) 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;
(2) has been operated, since its inception, in accordance
with its terms and there exists no fact which would adversely
affect its qualified status; and
(3) is not currently under investigation, audit or review by
the IRS and (to the knowledge of the Sellers 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.
iv. 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:
(1) 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;
(2) the PBGC has not notified the Company or any Pension
Benefit Plan of the commencement of
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proceedings under Section 4042 of ERISA to terminate any such
plan;
(3) no event has occurred since the inception of any Pension
Benefit Plan or (to the knowledge of the Sellers or Company) is
threatened or about to occur which would constitute a reportable
event within the meaning of Section 4043(b) of ERISA;
(4) 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
(5) 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.
v. 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.
vi. The aggregate of the amounts of contributions by the Company
to be paid or accrued under Pension Benefit Plans is not expected to
exceed approximately $170,000 for the 1999 fiscal year, all of which
has been or will be 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.
vii. 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
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"complete withdrawal" by the Company had occurred under each such Plan
as of December 31, 1998; 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).
viii. With respect to the Welfare Benefit Plans:
(1) 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.
(2) No claims for benefits are in dispute or in litigation.
ix. Set forth on Schedule 2.19 hereto is a true and complete list
of:
(1) 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
(2) 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).
x. 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
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to Purchaser with respect to any Compensation Commitment which is
unwritten.
xi. Each Compensation Commitment:
(1) since its inception, has been implemented in all
material respects in accordance with its terms;
(2) is not currently under investigation, audit or review by
the IRS or any other Federal or state agency and (to the
knowledge of the Sellers and Company) no such action is
contemplated or under consideration;
(3) has no liability for any Federal, state, local or
foreign Taxes;
(4) has no claims subject to dispute or litigation;
(5) has met all applicable requirements, if any, of the
Code; and
(6) has been implemented since its inception in material
compliance with the reporting and disclosure requirements imposed
under ERISA and the Code.
t. 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 or oral arrangements relating to the
Company's ownership or use of the Proprietary Rights other than as listed
on Schedule 2.20. No other Person has any rights to such Proprietary
Rights, except pursuant to agreements or licenses specified on Schedule
2.20. To the Sellers' 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, with all such licenses being specified on
Schedule 2.20.
u. 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
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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 on Schedule 2.21:
i. 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 Sellers' 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").
ii. PROPERTY.
(1) The Company has not handled any Hazardous Material on
any property now or previously owned or leased by the Company.
(2) No PCB or asbestos is or has been present at any
property now or previously owned or leased by the Company.
(3) There are no underground storage tanks for Hazardous
Materials, active or abandoned, at any property now or previously
owned or leased by the Company.
(4) There has been no Release of Hazardous Materials at, on
or under any property now or previously owned or leased by the
Company.
iii. TRANSPORTATION. The Company has not (i) transported or
arranged for the transportation of any
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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.
iv. 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.
v. 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.
vi. SITE ASSESSMENTS. Except as set forth on 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 Sellers or the
Company in relation to any property or facility now or previously
owned or leased by the Company.
v. CAPITAL EXPENDITURES AND INVESTMENTS. The Company has no
outstanding Contracts or commitments for capital expenditures and
investments, except as set forth on 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, 1998. There
has been no order or ruling from the VSCC or any other regulatory body and
none is threatened or expected by the Company
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requiring or recommending that the Company undertake any capital
expenditures or investments. Attached to Schedule 2.22 are copies of the
Company's 1999 and 2000 fiscal years capital expenditures budgets (by
project) and, with respect to the 1999 budget, a comparison of the actual
expenditures to budget (by project) year to date.
w. 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 on Schedule 2.23, since
December, 31, 1998, 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.
x. 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 all such 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 which would have a Material
Adverse Effect on the Company. 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 Sellers' or 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, 1996.
y. COMMISSIONS. Except as set forth on Schedule 2.25 hereto, 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
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Agreement based on any arrangement or agreement made by or on behalf of the
Sellers, the Company, or any of their Affiliates (collectively,
"COMMISSIONS"). Any and all such Commissions shall be paid solely by the
Sellers, and not by Peoples, Peoples Services or the Purchaser.
z. PERMITS AND REPORTS. Schedule 2.26 hereto sets forth a list of all
permits, licenses, registrations, certificates, franchises, Orders,
approvals or other authorizations from any Authority or other Person
including, without limitation, the FCC and the VSCC and any municipalities
("PERMITS") issued to or held by the Company in connection with its
operations or the Business. 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 each of the
Company and the Sellers 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 to
the extent set forth on Schedule 2.26 hereto, no other Person is currently
operating or providing telephone service within the Business' telephone
exchange area and, to the Sellers' and Company's knowledge, no Person is
anticipating or contemplating doing so. Except as set forth on 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 VSCC 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 VSCC 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 which
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are unique to the Business and which were filed by the Company within the
past three (3) years with the FCC, the VSCC 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 the Purchaser by the
Sellers. The transactions contemplated by this Agreement shall not cause
the Business' study area to change. Peoples is currently an average
schedule company and neither the Company nor the Sellers know of any reason
such study area or average schedule company status should not continue to
be available to the Company after the Closing Date.
aa. 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 (including future capital contributions or guaranty
commitments) are set forth on Schedule 2.4 hereto, setting forth the
maximum amount of the Company's potential obligations and the expected
payment schedule 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.
bb. YEAR 2000 COMPLIANCE. The Company has (a) initiated a review and
assessment of all areas within its Business and operations that could be
adversely affected by the "Year 2000
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Problem" (that is, the risk that computer applications used by the Company
may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to, including and any date after December 31,
1999), (b) developed a plan and timeline for addressing the Year 2000
Problem on a timely basis, and (c) to date implemented that plan in
accordance with that timetable. The Sellers and the Company reasonably
believe that all computer applications that are material to the Company's
Business and operations will on a timely basis be able to perform properly
date-sensitive functions for all dates before, including and after January
1, 2000. A true and complete copy of such plan and timeline has been
provided to Purchaser.
cc. DISCLOSURE. Neither this Agreement nor any of the attachments,
Schedules, Exhibits, written statements, documents, certificates or other
items prepared for or supplied to the Purchaser by or on behalf of the
Sellers 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.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Sellers as follows:
a. 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.
b. 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
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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.
c. 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 (except upon the Shares as part of
Purchaser's financing of this transaction) 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 bylaws 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.
d. INVESTMENT INTENT. The Purchaser represents and warrants to the
Sellers 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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4. COVENANTS OF THE SELLERS AND THE COMPANY
Subject to the provisions of Section 4.14 hereof, from and after December
31, 1998 until the Closing Date, each of the Sellers 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 Sellers, to cause the Company to comply) with
the following (the term "Company" as used in this Article IV shall mean and
include Peoples, Peoples Services and any and all of their subsidiaries and
Affiliates):
a. REGULAR COURSE OF BUSINESS.
i. 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 maintain
its financial and accounting records in a manner consistent with that
employed at December 31, 1998.
ii. 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.
iii. INSURANCE. The Company shall maintain current its insurance
policies with the coverage and in the amounts set forth on Schedule
2.24.
iv. 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
Sellers may be aware.
v. SUPPLEMENT. From time to time prior to the Closing Date, the
Sellers 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
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at the date hereof, would have been required to be set forth in this
Agreement or the Schedules hereto.
b. AMENDMENTS. No change or amendment shall be made to the charter or
bylaws of the Company, and the Company shall not merge into or consolidate
with any other Person or change the character of its Business.
c. 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.
d. DIVIDENDS. The Company shall not declare, pay or set aside for
payment any dividend or other distribution in respect of its capital stock.
e. CAPITAL EXPENDITURES; TANSACTIONS WITH AFFILIATES. The Company
shall not make any capital expenditures, or commitments with respect
thereto, except as provided on Schedule 2.22. Further, the Company shall
timely make the capital expenditures set forth on Schedule 2.22 or discuss
with the Purchaser, after written notice of the Company's proposed changes,
its reasons for not so performing. The Company shall also make capital
expenditures in the ordinary course consistent with past practices. The
Company shall not make or accept any loan or advance to or from any of its
Affiliates or Affiliates of the Sellers.
f. 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.
g. 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.
h. OTHER COMMITMENTS. Except as set forth in this Agreement or
permitted in writing by the Purchaser from and
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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.
i. INTERIM FINANCIAL INFORMATION, INVESTMENT K-1s. Except as set forth
in Schedule 4.9 hereof, from and after the date hereof, the Company shall
supply the Purchaser with a copy of its internal monthly Unaudited
Financial Statements within forty-five (45) days after the end of each
month. Additionally, the Company shall supply the Purchaser with a copy of
the Financial Statements for the fiscal year ending December 31, 1999 as
provided in Section 2.9 hereof. Further, the Company shall provide the
Purchaser with any and all financial statements, K-1s and/or reports
received with respect to investments set forth on Schedule 2.4 hereto
promptly following receipt thereof by the Company or the Sellers.
j. CONSENTS AND AUTHORIZATIONS. The Sellers and the Company shall,
promptly after the date hereof, commence efforts to obtain the consents,
waivers and authorizations listed on Schedules 2.3 and 2.26 hereto. The
Sellers 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.
k. ACCESS. Each of the Sellers 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.
l. NOTICE OF TRANSFER. Each of the Sellers 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).
m. 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
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penalties and interest) incurred in connection with this Agreement shall be
borne one-half (1/2) by the Sellers (collectively) and one-half (1/2) by
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.
n. 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, 1998 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, which
consent shall not be unreasonably withheld.
o. COOPERATION WITH PURCHASER. Each of the Sellers 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.
5. COVENANTS OF THE PURCHASER
a. CONSENTS AND AUTHORIZATIONS. The Purchaser shall, promptly after
the date hereof, commence efforts to obtain the consents, waivers and
authorizations listed on 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.
Purchaser shall, at its expense, manage the process of obtaining, with the
Sellers and the Company's assistance, all government consents and approvals
required to carry out the transactions contemplated by this Agreement.
b. EMPLOYEES. For a period of eighteen (18) months following the
Closing, the Purchaser shall cause the Company to continue to employ, with
the exception of E. Fitzgerald,
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IV, all of those employees set forth on Schedule 2.10 hereto (the "RETAINED
EMPLOYEES"); provided, however, that the Company shall retain the right to
terminate any employee at any time for cause. During such eighteen (18)
month period, each of the Retained Employees shall be compensated at a
level which is at least equal to such Retained Employee's salary level at
the time of Closing, and no such Retained Employee shall be required to
relocate his or her office outside of the Exchange.
6. OTHER AGREEMENTS
The parties hereto further agree as follows:
a. 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.
b. 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.
c. CONSENTS. Without limiting the generality of Section 6.2, each of
the parties hereto shall use all
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reasonable efforts to obtain all waivers, Permits, authorizations, consents
and approvals of, or notice to, 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.
d. NO SOLICITATION OR NEGOTIATION. Unless and until this Agreement is
terminated, neither the Sellers nor the Company shall, and each shall 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, 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.
e. 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.
f. 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 law or in connection with a securities filing, or to obtain the
consents, waivers and authorizations listed on 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 (but excluding
disclosures necessitated by any securities filing) with respect to this
Agreement and the transactions contemplated hereby shall be subject to the
prior approval of both the Sellers and the Purchaser, which approval shall
not be unreasonably withheld; PROVIDED, HOWEVER, that either party
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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, prior
to the Closing Date, except as otherwise required by law or in connection
with a securities filing, 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 Sellers. Additionally, the parties
agree that the Company may, following the execution of this Agreement,
announce the existence of the pending sale transaction contemplated by this
Agreement to the Company's employees. The Purchaser shall, at the request
of the Sellers and the Company, participate in any such announcement to the
Company's employees as the Sellers and the Company determine appropriate.
g. RECORDS AND INFORMATION.
i. RETENTION OF RECORDS. Except as otherwise required by
Regulation or agreed to in writing, the Sellers and the Purchaser
shall each retain, and shall cause their respective 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.
ii. ACCESS TO INFORMATION. From and after the Closing Date, the
Sellers 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 Sellers' possession relating to
the Company, insofar as such access is reasonably required by the
Purchaser. Similarly, the Purchaser shall afford to the Sellers and
their 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
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business as conducted prior to the Closing Date, insofar as such
access is reasonably required by the Sellers.
iii. DELIVERY OF CORPORATE RECORDS. The Sellers 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 Sellers' cost to the Purchaser of
the records in the Sellers' possession relating to the Company,
including, without limitation, the corporate minute 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 the Purchaser
or the Company or (ii) it is necessary or appropriate for the Sellers
to retain such records for use in preparation of Tax Returns under the
provisions hereof. The Sellers may make and retain copies of all or
any of such records or documents at the Sellers' expense.
iv. WITNESSES. At all times from and after the Closing Date, each
of the Sellers 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.
h. INSURANCE POLICIES AND CLAIMS ADMINISTRATION.
i. INSURANCE COVERAGE PRIOR TO THE CLOSING DATE. The Sellers
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 Sellers 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
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assistance to Sellers in asserting and pursuing such coverage. In
particular, the Purchaser shall, upon request by Sellers, cause the
Company to file all necessary claims and take all such other action as
may reasonably be requested by Sellers to pursue such coverage. As
between the Sellers, 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 Sellers 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 Sellers shall provide reasonable cooperation and
assistance to the Company and the Purchaser.
ii. 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 Sellers 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.
i. OTHER TAX MATTERS.
i. TAX RETURNS. The Purchaser, the Sellers, 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 Sellers 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 Sellers or
which are not on the Company premises, and which relate to any Taxes
of the Company for any taxable period. Prior to the delivery of the
materials
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described in the preceding sentence, the Sellers shall cooperate with
the Purchaser in providing access to such materials as is reasonably
required by the Purchaser.
The parties hereto agree that the Sellers shall prepare, and pay (but only
to the extent not fully paid or reserved against on the Financial Statements or
the Unaudited Financial Statements) all Taxes arising therefrom, all Tax Returns
for the Company for the periods on or before the Closing Date and for all Taxes
arising as a result of the transactions contemplated by this Agreement (except
as provided in Section 4.13 hereof). Upon mutual agreement between the Sellers
and the Purchaser, the Company may prepare any such required Tax Returns. The
Purchaser shall prepare, and pay all Taxes arising therefrom, all Tax Returns
for the Company for the periods after the Closing Date.
ii. INFORMATION. The Purchaser and the Sellers 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 Sellers 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.
7. 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:
a. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Sellers 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 Sellers and the
Company shall have performed and complied in all material respects with all
agreements, covenants and
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conditions required by this Agreement to be performed and complied with by
them prior to the Closing Date. The Sellers shall have delivered to the
Purchaser a certificate, dated the Closing Date, in a form reasonably
satisfactory to the Purchaser, certifying to the foregoing, and 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. The Sellers shall deliver to
the Purchaser all of the certificates, stock powers and other documentation
referenced in Section 9.2 hereof, evidencing the transfer to the Purchaser
of clear title to all of the Shares at the Closing, all in form and
substance satisfactory to the Purchaser and its counsel in their sole
discretion.
b. CONSENTS AND APPROVALS. The Sellers, the Company and the Purchaser
shall have obtained all consents, approvals, Orders, qualifications,
licenses, Permits, regulatory approvals (including but not limited to any
necessary consent, approval, exemption or notice as required by (A) the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (B) the Virginia State
Corporation Commission, and (C) the Towns of Gretna and Hurt, Virginia, and
such other municipalities as may be necessary) and other authorizations,
whether specified on Schedules 2.3, 2.26 and 3.3 hereto or not, and shall
have given all notices, required by all applicable Regulations, Orders and
Contracts binding on any of the Sellers, 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.
c. NO MATERIAL ADVERSE CHANGE. There shall have been no Material
Adverse Change in the business, properties, Financial Statements, Unaudited
Financial Statements, Schedules to this Agreement, business prospects,
regulatory climate, condition (financial or otherwise) or results of
operations of the Company since December 31, 1998 through the Closing Date.
The Purchaser shall have received a certificate, dated the Closing Date,
from the Sellers, in a form reasonably satisfactory to the Purchaser,
certifying to the foregoing.
d. NO PROCEEDING OR LITIGATION. No Order or Regulation shall be in
effect and no litigation shall have been
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consummated or threatened which would prevent the consummation of the
transactions contemplated hereby.
e. SECRETARY'S CERTIFICATE. The Purchaser shall have received a
certificate, signed by the Secretaries of Peoples and Peoples Services
dated the Closing Date, as to the charter (attaching a Secretary of State
certified copy thereof, with all amendments) and bylaws of Peoples and
Peoples Services, respectively, and the resolutions adopted by the
shareholders and directors of Peoples and Peoples Services in connection
with this Agreement in a form reasonably satisfactory to the Purchaser.
f. 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 Peoples, Peoples
Services and each of their subsidiaries in their respective jurisdictions
of incorporation and in each jurisdiction in which each is qualified to do
business as a foreign corporation as of a date not more than fifteen (15)
days prior to the Closing Date.
g. OPINION OF SELLERS' COUNSEL. The Sellers shall deliver at Closing
an opinion of counsel to the Sellers addressed to the Purchaser and the
Purchaser's lender in substantially the form attached hereto as Exhibit
7.7.
h. CONTINUATION OF E. FITZGERALD, III EMPLOYMENT AGREEMENT. Following
the Closing, the Purchaser shall cause ENT the Company to continue the
employment agreement currently in place between Peoples and E. Fitzgerald,
III for the remainder of the initial five (5) year term thereof. E.
Fitzgerald, III shall execute an agreement, in substantially the form
attached hereto as Exhibit 7.8, restating the terms and conditions thereof
(the "RESTATED EMPLOYMENT AGREEMENT").
i. NONCOMPETITION AGREEMENT. E. Fitzgerald, IV shall enter into a
Noncompetition Agreement with the Company and the Purchaser in
substantially the form attached here as Exhibit 7.9 (the "NONCOMPETITION
AGREEMENT").
j. A. BROWN EMPLOYMENT AGREEMENT. A. Brown shall enter into an
Employment Agreement in substantially the form attached hereto as Exhibit
7.10 (the "A. BROWN EMPLOYMENT AGREEMENT").
k. RESIGNATIONS. The Sellers shall have caused all directors and
officers of Peoples and Peoples Services and all
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of their subsidiaries to have resigned. Further, E. Fitzgerald, IV shall
have resigned as an employee of the Company.
l. OTHER DOCUMENTS. The Purchaser shall have been furnished with such
other and further documents and certificates, including certificates of the
Sellers, Peoples' and Peoples Services' officers, directors and others, as
the Purchaser shall reasonably request to evidence compliance with the
conditions set forth in this Agreement.
m. LIENS. The Sellers shall have removed all Liens on the Shares
and/or on the assets and properties of the Company other than Permitted
Liens.
n. DELIVERY OF MINUTE BOOKS. The Sellers shall deliver at Closing all
original minute books, corporate seals and stock transfer records of
Peoples, Peoples Services and of all their direct and indirect
subsidiaries, as well as original evidence of all their respective
investments.
o. DELIVERY OF FINANCIAL STATEMENTS. The Sellers shall deliver the
Financial Statements for the fiscal year ended December 31, 1999, to the
Purchaser as provided in Section 2.9 hereof, and shall deliver the
Unaudited Financial Statements on a monthly basis from and after the date
hereof as soon as such Unaudited Financial Statements shall have been
prepared, all as provided in Section 4.9 hereof.
p. AMENDMENT TO LEASE AGREEMENTS. Each of the Company's lease
agreements (collectively, the "LEASES") set forth on Schedule 2.14(b)
hereto shall be amended in a manner mutually satisfactory to the Purchaser
and the Lessors thereunder.
q. RENEWAL OF FRANCHISES. The Sellers shall have renewed for at least
ten (10) years from the date of Closing the telephone franchise agreements
granted by the Towns of Gretna and Hurt, Virginia, and shall have similarly
renewed any other franchise agreements currently in existence or required
in connection with the Company's Business as presently conducted.
r. COMPLETION OF NATAL PROJECT. The Company's Natal capital
improvement project (with respect to the installation of a new Nortel
remote, as more particularly disclosed on Schedule 2.22) shall be
completed, operational and fully paid for by the Company.
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s. COMPLETION OF ENVIRONMENTAL ACTIONS. The Company shall have fully
complied with and completed all recommended actions detailed in that
certain letter of Engineering Consulting Services, Ltd. as dated November
19, 1999, a copy of which is attached to Schedule 2.21 hereto, and the
Company shall have fully paid all amounts due to Engineering Consulting
Services, Ltd., any Authority and/or any other third party in connection
therewith.
8. CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
The obligations of the Sellers under this Agreement shall be subject to the
satisfaction of each of the following conditions unless waived in writing by
Sellers:
a. 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 Sellers a certificate, dated the Closing Date, in a
form reasonably satisfactory to the Sellers, certifying to the foregoing,
and 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.
b. CONSENTS AND APPROVALS. The Purchaser, the Sellers and the Company
shall have obtained all consents, approvals, orders, qualifications,
licenses, Permits, regulatory approvals, (including but not limited to any
necessary consent, approval, exemption or notice as required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), and other
authorizations, whether specified on Schedules 2.3, 2.26 and 3.3 hereto or
not, and shall have given all notices, required by all applicable
Regulations, Orders and Contracts binding on the Purchaser, the Sellers or
the Company or any of their respective properties and assets with respect
to the execution, delivery and performance of this Agreement.
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c. NO PROCEEDING OR LITIGATION. No Order or Regulation shall be in
effect and no litigation shall have been consummated or threatened which
would prevent the consummation of the transactions contemplated hereby.
d. SECRETARY'S CERTIFICATE. The Sellers shall have received a
certificate, signed by the Secretary of the Purchaser, dated the Closing
Date, as to the charter and bylaws 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 Sellers.
e. OPINION OF PURCHASER'S COUNSEL. The Purchaser shall deliver at
Closing an opinion of counsel to the Purchaser addressed to the Sellers in
substantially the form attached hereto as Exhibit 8.5.
f. RESTATED EMPLOYMENT AGREEMENT. The Purchaser shall have caused the
Company to enter into the Restated Employment Agreement with E. Fitzgerald,
III.
g. NONCOMPETITION AGREEMENT. The Purchaser and E. FitzgeraldIV shall
have entered into the Noncompetition Agreement.
h. A. BROWN EMPLOYMENT AGREEMENT. The Purchaser shall have caused the
Company to enter into the A. Brown Employment Agreement with A. Brown.
i. AMENDMENT TO LEASE AGREEMENTS. Each of the Company's Leases shall
be amended in a manner mutually satisfactory to the Purchaser and the
Lessors thereunder.
9. CLOSING
a. 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 March 31, 2000, (or on such date either before or after March
31, 2000 as the parties hereto shall mutually agree, which shall be on the
first day of the month which is at least ten (10) days after receipt of all
VSCC, FCC, Hart-Scott-Rodino and other approvals required as a precondition
to Closing) (the "CLOSING DATE") in the offices of the Sellers' counsel;
PROVIDED, that the Closing shall occur as soon as practicable
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after the satisfaction of the conditions contained in Articles VII and VIII
hereof.
b. CLOSING DATE PAYMENT AND RECEIPT OF SHARES. On the Closing Date (i)
the Sellers 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, deposit in an escrow
account Escrow Funds of Three Hundred Thousand Dollars ($300,000), all as
provided in Section 11.9 hereof; (iii) the Purchaser shall, by wire
transfer of same-day funds, pay to the Sellers (care of the Caskie & Frost
Trust Account), in accordance with their Percentage Interests, the amount
of the Adjusted Purchase Price for all of the Shares, less the Escrow
Funds; and (iv) the parties shall deliver to each other the documents
required under this Agreement to be delivered at the Closing.
10. TERMINATION AND ABANDONMENT
a. METHODS OF TERMINATION. This Agreement may be terminated and the
transactions herein contemplated may be abandoned at any time:
i. MUTUAL CONSENT. By mutual written consent of the Purchaser and
the Sellers.
ii. SELLERS' 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 Sellers in writing
thereof) or if any of the Sellers or the Company are 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 Sellers 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 any of the Sellers 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, VI or VII hereof,
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iii. PURCHASER'S FAILURE TO PERFORM. By the Sellers 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 Sellers 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 Sellers have notified the Purchaser in writing of
such default) or if at any time prior to the Closing Date it becomes
apparent to the Sellers (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.
iv. FAILURE TO CLOSE BY MARCH 31, 2000. By either party in the
event the Closing has not occurred by March 31, 2000, unless such
failure to close shall be due to a breach of this Agreement by the
party seeking to terminate the Agreement, or such failure to close
shall be due to the nonreceipt of approval from the VSCC, which
approval has been diligently sought, in which last case this date
shall be extended for one hundred twenty (120) days automatically.
v. MATERIAL ADVERSE CHANGE. By the Purchaser if a Material
Adverse Change shall be shown or indicated (in the sole discretion of
the Purchaser) in any of the Unaudited Financial Statements delivered
after the date hereof or in the December 31, 1999 Financial Statements
or otherwise with respect to any of the conditions to Closing set
forth in Section 7.3 hereof, and written notice of termination of this
Agreement shall have been given by the Purchaser within thirty (30)
business days of the Purchaser's receipt of such Unaudited Financial
Statements or December 31, 1999 Financial Statements or the
Purchaser's discovery of such Material Adverse Changes.
vi. 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.
b. PROCEDURE UPON TERMINATION. If this Agreement is terminated as
provided herein:
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i. 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.
ii. 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 such party,
or disclosed to third parties.
11. SURVIVAL OF TERMS; INDEMNIFICATION
a. SURVIVAL; LIMITATIONS. 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 the
representations set forth in Sections 2.7 and 2.8 hereof, the
Indemnification Period shall survive in perpetuity, and provided further
that with respect to any income tax liability of Peoples, Peoples Services
or any of their subsidiaries or Affiliates attributable to any activities
or transactions occurring by any of them on or prior to the Closing Date,
the agreement of the Sellers to indemnify the 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 IRC, as such statutes of limitations may
have been or be extended by agreement from time to time.
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b. INDEMNIFICATION BY THE SELLERS. After the Closing Date, subject to
the limitations set forth in Section 11.1 hereof, the Purchaser and its
Affiliates (including, without limitation, Peoples and Peoples Services)
and their respective officers, directors, employees, shareholders,
representatives and agents shall be indemnified and held harmless jointly
and severally by the Sellers, their respective heirs, successors,
representatives and assigns, 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:
i. MISREPRESENTATION OR BREACH. Any misrepresentation or breach
of warranty of any of the Sellers or the Company, or nonfulfillment of
any obligation on the part of the Company (to be performed on or prior
to the Closing) or any of the Sellers 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, Unaudited Financial
Statement, or instrument delivered by or on behalf of the Sellers or
the Company hereunder.
ii. TAXES. All Taxes of the Sellers, of Peoples, Peoples Services
or any of their subsidiaries or Affiliates or with respect to their
investments, including but not limited to any and all investments sold
or otherwise disposed of prior to the Closing Date, Peoples' interest
in the Virginia Independent Telephone Alliance, L.C., and Peoples
Services' interest in the Virginia PCS Alliance, L.C., attributable to
any period prior to or on the Closing Date.
iii. OTHER 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 Excluded Assets
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.
iv. RELATED EXPENSES. All expenses and costs, including but not
limited to legal fees, reasonably paid
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or incurred in connection with any such indemnified Claim.
c. INDEMNIFICATION BY THE PURCHASER. After the Closing, subject to the
limitations set forth in Section 11.1, the Sellers and their respective
heirs, successors, representatives and assigns 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:
i. 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.
ii. TAXES. All Taxes of the Purchaser or of the Company
attributable to any period after the Closing Date.
iii. OTHER CLAIMS. Any Claim of a third party arising out of the
business or operations of the Company 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 after the Closing
Date.
iv. RELATED EXPENSES. All expenses and costs, including but not
limited to legal fees, reasonably paid or incurred in connection with
any such indemnified Claim.
d. THIRD PARTY CLAIMS.
i. 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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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 11.4(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
immediately 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 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
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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.
ii. 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 Indemnitee shall be borne by
the Indemnitor.
e. OTHER CLAIMS.
i. In the event an Indemnitee should have a claim under this
Article XI against an Indemnitor that does not involve a third party
Claim, the Indemnitee shall promptly give notice (the "INDEMNITEE
NOTICE") and the details thereof, including copies of all relevant
information and documents, to the Indemnitor within a period of thirty
(30) days following the discovery of the claim by the Indemnitee (the
"CLAIM NOTICE PERIOD"). The failure by any Indemnitee to give the
Indemnitee Notice within the Claim Notice Period shall not impair the
Indemnitee's rights hereunder except to the extent that the Indemnitor
demonstrates that it has been prejudiced thereby. The Indemnitor will
notify the Indemnitee within a period of ten (10) days after the
receipt of the Indemnitee Notice by the Indemnitor (the "INDEMNITY
RESPONSE PERIOD") whether the Indemnitor disputes its
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liability to the Indemnitee under this Article XI with respect to such
Claim. If the Indemnitor notifies the Indemnitee that it does not
dispute the Claim described in such Indemnitee Notice or fails to
notify the Indemnitee within the Indemnity Response Period whether the
Indemnitor disputes the claim described in such Indemnitee Notice, the
actual damages as finally determined will be conclusively deemed to be
a liability of the Indemnitor under this Article XI and the Indemnitor
shall pay the amount of such damages to the Indemnitee on demand. If
the Indemnitor notifies the Indemnitee within the Indemnity Response
Period that the Indemnitor disputes its liability with respect to such
Claim, the Indemnitor and the Indemnitee will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through
negotiations within a period of thirty (30) days from the date of such
notice or such longer period as may be agreed to by the parties in
writing, such dispute shall be resolved by arbitration in accordance
with Section 11.5(b) hereof.
ii. Any dispute required to be submitted to arbitration pursuant
to this Section 11.5 shall be finally and conclusively determined in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "RULES OF ARBITRATION") then in effect by
the decision of three (3) arbitrators (the "BOARD OF ARBITRATION")
selected in accordance with the Rules of Arbitration. The Board of
Arbitration shall meet in Charlotte, North Carolina and shall render a
decision in writing (concurred in by a majority of the members of the
Board of Arbitration) with respect to and stating the amount, if any,
which the Indemnitor is required to pay to the Indemnitee in respect
of the claim made by the Indemnitee. The decision of the Board of
Arbitration shall be rendered as soon as practical following
commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to the
Indemnitee and the Indemnitor. Any decision made by the Board of
Arbitration shall be final, binding and conclusive on the Indemnitee
and the Indemnitor and entitled to be enforced to the fullest extent
permitted by law and entered in any court of competent jurisdiction.
The parties hereto hereby consent to the jurisdiction of the foregoing
Board of Arbitration and to the jurisdiction of any local, state or Federal
court located in the State of North
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Carolina for the purpose of enforcing the decision or award of the Board of
Arbitration or otherwise. The parties hereto agree that all service of process
may be made on any such party by personal delivery or by registered or certified
mail addressed to the appropriate party at the address for such party set forth
in this Agreement.
All fees, costs and expenses of the prevailing party in any arbitration,
including, but not limited to, attorneys' fees, shall be paid by the losing
party and shall be awarded to the prevailing party as part of the decision of
the Board of Arbitration. For purposes hereof, a "PREVAILING PARTY" shall mean
the party which substantially prevails in its position in arbitration. Each and
every arbitration proceeding commenced pursuant to this Section 11.5(b) shall be
consolidated with any arbitration proceedings simultaneously or previously
commenced (but not concluded) under this Section 11.5(b).
f. CONTINUED LIABILITY FOR INDEMNITY CLAIMS. The liability of any
Indemnitor hereunder with respect to Claims hereunder shall continue for so
long as any Claims for indemnification may be made hereunder pursuant to
this Article XI and, with respect to any such indemnification Claims duly
and timely made, thereafter until the Indemnitor's liability therefore is
finally determined and satisfied.
g. BASKET AMOUNT.
i. INDEMNIFICATION BY THE SELLERS. Notwithstanding anything to
the contrary herein, Sellers will have no liability (for
indemnification or otherwise) with respect to the matters described in
Section 11.2 of this Agreement until the total of all damages suffered
by the Purchaser and/or its Affiliates exceeds Fifty Thousand Dollars
($50,000.00)(the "Basket Amount"), and then only for the amount by
which such damages exceed the Basket Amount.
ii. INDEMNIFICATION BY THE PURCHASER. Further, notwithstanding
anything to the contrary herein, Purchaser will have no liability (for
indemnification or otherwise) with respect to the matters described in
Section 11.3 of this Agreement (other than the nonfulfillment, in
whole or in part, of any obligation on the part of the Purchaser under
this Agreement which relates to the payment of the Adjusted Purchase
Price) until the total of all damages suffered by the Sellers and/or
their Affiliates exceeds the Basket Amount and
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then only for the amount by which such damages exceed the Basket
Amount.
iii. AGGREGATION. Notwithstanding the foregoing, to the extent
indemnification is sought under Sections 11.2(a) or 11.3(a) of this
Agreement, any and all misrepresentations or breaches or
nonfullfilments shall be aggregated for purposes of determining if the
Basket Amount has been met. By way of example, and not by way of
limitation, if Sellers shall have failed to perform three obligations
of the type referred to in Section 2.12(b) hereof, each causing
damages of $20,000, then payment in the amount of $10,000 shall be
made to Purchaser as provided herein (representing the excess of such
damages over the Basket Amount of $50,000).
h. RIGHT OF OFFSET. From and after the Closing Date through the longer
of (a) the Indemnification Period or (b) any continuation thereof as
provided in Section 11.6, the Purchaser shall have the right to set off
against any and all payments due from the Purchaser to any or all of the
Sellers under their respective Noncompetition and/or Employment Agreements
any amount for which the Purchaser is entitled to indemnification by the
Sellers under this Article XI.
i. ESCROW OF LIQUID ASSETS.
i. ESTABLISHMENT OF ESCROW ACCOUNT. Three Hundred Thousand
Dollars ($300,000) of the Adjusted Purchase Price otherwise payable to
the Sellers for their Shares hereunder (inclusive of any investment
earnings thereon, the "ESCROW FUNDS") shall be maintained in an escrow
account (the "ESCROW ACCOUNT"), with Centura Bank (the "ESCROW
AGENT"), pursuant to the terms and provisions of an Escrow Agreement
to be executed at Closing in substantially the form attached hereto as
Exhibit 11.9 hereto (the "ESCROW AGREEMENT").
ii. PURPOSE OF ESCROW ACCOUNT. The Company formerly owned a
Twenty-Five Percent (25%) interest in 360 Communications of Danville
Limited Partnership ("360"). The Sellers and the Company acknowledge
that the IRS is currently conducting audits of the tax returns filed
on behalf of 360 with respect to 360's 1993 and 1994 tax years. The
subject of such audits is set forth in two 60 Day Letters from the IRS
to the Company, each dated March 8, 1999 and identified by reference
codes CP:E:ESS 03081999-0327 and CP:E:ESS 03081999-0330,
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respectively (collectively, with all attachments thereto, the "60 DAY
LETTERS"), and in the June 3, 1999 Protest Letter to the IRS by 360's
Tax Matters Partner (the "PROTEST LETTER")(the subject matter of such
audits, as specifically set forth in the 60 Day Letters and/or the
Protest Letter, is hereinafter referred to as the "360 AUDIT ISSUES").
The Company sold all of its interest in 360 in 1998. The Company and the
Sellers acknowledge, however, that the 360 Audit Issues may result in the
payment of taxes, penalties, fees, fines and/or other expenses (including legal
fees) by the Company with respect to the tax years 1993, 1994, 1995, 1996, 1997
and 1998 (any and all such taxes, penalties, fees, fines and/or other expenses
pertaining to or arising from the 360 Audit Issues are hereinafter referred to
collectively as the "360 AUDIT PAYABLES").
The Sellers acknowledge that under the terms of Sections 11.1 and 11.2
hereof, they are liable for the 360 Audit Payables. However, due to the ongoing
nature of the IRS audits, it is not possible at this time to determine with
certainty the amount of the 360 Audit Payables. Further, the Purchaser does not
desire to have to seek such indemnification and the Sellers do not desire to be
in a position of having to seek payment from one another to cover indemnity
obligations at such time as the amount of the 360 Audit Payables becomes known.
Therefore, the Sellers and the Purchaser have agreed that a reasonable estimate
of the 360 Audit Payables is $300,000, and have agreed to establish the Esrow
Account and set aside the Escrow Funds for the payment of the 360 Audit Payables
at such time as the IRS audits are resolved.
iii. TERM OF ESCROW; ADMINISTRATION. The term of the Escrow
Agreement (the "ESCROW TERM") shall commence upon the Closing and
continue until the sooner of (i) the exhaustion of the Escrow Funds as
a result of the payment of the 360 Audit Payables, (ii) the final
resolution of all IRS audits with respect to all of the 360 Audit
Issues for the tax years 1993 through 1998, or (iii) the expiration of
the applicable statutes of limitations (including any extensions
thereof) with respect to all of the 360 Audit Issues for the tax years
1993 through 1998. During the Escrow Term, the Purchaser (acting on
its own behalf or through the Company) shall be responsible for and
have sole authority with respect to all correspondence, negotiations
and settlements with the IRS regarding the 360 Audit Issues. The
Purchaser and the Sellers agree to provide each other with reasonable
cooperation throughout the continuation of all audits
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regarding the 360 Audit Issues, so as to keep one another informed of
the current status of such audits and to assist one another with any
necessary data production, document preparation or negotiations.
iv. ESCROW AS SOLE REMEDY. The Sellers agree that the Basket
Amount set forth in Section 11.7 hereof shall not apply with respect
to the 360 Audit Payables. The Purchaser agrees that the 360 Audit
Payables shall be paid solely from the Escrow Funds and that to the
extent the 360 Audit Payables exceed the Escrow Funds, the Purchaser
shall not be entitled to seek indemnification from the Sellers with
respect to any such excess.
12. GENERAL PROVISIONS
a. 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 all of the parties hereto.
b. 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.
c. CERTAIN DEFINITIONS.
"ADJUSTED PURCHASE PRICE" shall have the meaning ascribed to such term in
Section 1.2 hereof.
"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.
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"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 VSCC and all municipalities in which Peoples,
Peoples Services and/or any of their subsidiaries or Affiliates engage in
business, 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.
"BASE PURCHASE PRICE" shall have the meaning ascribed to such term in
Section 1.2 hereof.
"BUSINESS DAY" shall mean any day that is not a Saturday or Sunday and that
in Gretna, Virginia, or Charlotte, North Carolina, 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, or otherwise, 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.
"CLOSING BALANCE SHEET" shall have the meaning ascribed to such term in
Section 1.3 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
Peoples, Peoples Services and all of their subsidiaries and Affiliates.
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"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, 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 hereof.
"GAAP" shall mean United States generally accepted accounting principles,
consistently applied, as in existence at the date hereof and/or at the Closing
Date.
"HAZARDOUS MATERIALS" shall have the meaning ascribed to such term in
Section 2.21(a) hereof.
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"IMPROVEMENTS" shall have the meaning ascribed to such term in Section
2.14(c) hereof.
"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" or the "CODE" 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, regulatory climate, condition
(financial or otherwise) or results of operations.
"NET WORKING CAPITAL" shall have the meaning ascribed to such term in
Section 1.2 hereof.
"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.
"PERCENTAGE INTERESTS" shall have the meaning ascribed to such term in
Section 1.3 hereof.
"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
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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 existing at the Closing Date with respect to the Total Long Term
Debt, but only to the extent such particular items of Total Long Term Debt are
accounted for in determining the Adjusted Purchase Price, and such Liens are
fully disclosed on Schedule 2.14(a) hereto.
"PERSON" shall mean any corporation, partnership, joint venture,
organization, entity, Authority or natural person, together with any and all
heirs, successors, representatives and assigns thereof.
"PENSION BENEFIT PLAN" shall have the meaning ascribed to such term in
Section 2.19 hereof.
"PRICE PER SHARE" shall have the meaning ascribed to such term in Section
1.2 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.
"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" or "SELLERS" 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.
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<PAGE>
"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.
"TOTAL LONG TERM DEBT" shall have the meaning defined in the Financial
Statements, computed in accordance with GAAP, consistently applied. By way of
example and not limitation, "Total Long Term Debt" shall specifically not
include future capital contribution requirements and/or guarantees of
indebtedness by the Company with respect to the Virginia PCS Alliance, L.C.
"UNAUDITED FINANCIAL STATEMENTS" shall have the meaning ascribed to such
term in Section 2.9 hereof.
"VSCC" shall mean the Virginia State Corporation Commission.
"WELFARE BENEFIT PLAN" shall have the meaning ascribed to such term in
Section 2.19 hereof.
d. 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, Vice Charlotte, NC 28244-2020
Chairman and Executive Vice ATTN: Shirley J. Linn, Esq.
President (704) 333-1200 (Phone)
(704) 344-8150 (Phone) (704) 377-9630 (Fax)
(704) 344-8121 (Fax) [email protected] (E-Mail)
[email protected](E-Mail)
NOTICES TO THE
COMPANY AND TO THE SELLERS: WITH A COPY TO:
- --------------------------- ---------------
Mr. E. B. Fitzgerald, IV Caskie & Frost
3000 East Gretna Rd. 2306 Atherholt Road
Gretna, VA 24557 P.O. Box 6360
(804) 656-2291 (Phone) Lynchburg, VA 24505
ATTN: Theodore J. Craddock, Esq.
(804)846-2731 (Phone)
(804) 846-0496 (Fax)
[email protected]
(E-Mail)
e. 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 hereto; PROVIDED, that the Purchaser may, without the prior written
consent of the Sellers or any other party hereto, 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 Communications, Inc. or MJD Services
Corp., or (ii) its lenders as collateral in connection with the financing
of the transactions contemplated hereby. No such assignment shall relieve
the assignor of such assignor's liability for any and all continuing
obligations hereunder, however.
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<PAGE>
f. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Virginia, without regard to its principles of conflict of laws.
g. 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.
h. 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.
i. 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.
j. 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.
k. 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.
l. 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.
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<PAGE>
m. 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 (which, with
respect to such expenses incurred by or on behalf of the Sellers or the
Company, shall be paid by the Sellers and not by the Company).
Notwithstanding the foregoing, in the event a breach of Section 6.4 hereof
occurs and the transactions contemplated hereby are not consummated, the
Sellers shall pay to the Purchaser the Purchaser's out-of-pocket fees,
including, without limitation, legal fees and expenses, incurred in
connection with the transactions contemplated hereby. Additionally,
notwithstanding the foregoing, (A) with respect to any Hart-Scott-Rodino
filing necessitated by the transactions contemplated herein, (1) the
Purchaser shall pay any and all applicable filing fees, and (2) each of the
parties shall bear its own fees and expenses otherwise incurred in
connection with the preparation of such filing, and (B) with respect to
compliance with any notice and/or approval requirements of the Virginia
State Corporation Commission necessitated by the transactions contemplated
herein, any and all legal fees, filing fees and expenses of regulatory
counsel incurred in connection therewith shall be paid one-half (1/2) by
the Purchaser and one-half (1/2) by the Sellers (collectively).
n. TIME OF THE ESSENCE. Time is strictly of the essence with respect
to the provisions of this Agreement.
o. INJUNCTIVE RELIEF. The parties hereby agree that any remedy at law
for any breach of the provisions of this Agreement shall be inadequate and
that the nonbreaching party shall be entitled to injunctive relief in
addition to any other remedy which such nonbreaching party might have at
law or in equity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
MJD VENTURES, INC.
--------------------------------------
By:
----------------------------------
Title:
--------------------------------
(SEAL)
--------------------------------
E. B. FITZGERALD, III
(SEAL)
--------------------------------
E. B. FITZGERALD, IV
(SEAL)
--------------------------------
ANN F. BROWN
PEOPLES MUTUAL TELEPHONE COMPANY
--------------------------------------
By:
----------------------------------
Title:
--------------------------------
(SEAL)
--------------------------------
F. SUE FITZGERALD
(SEAL)
--------------------------------
WINNIE F. SMITH
(SEAL)
--------------------------------
GREG SMITH
(SEAL)
--------------------------------
WINNIE S. LEIENDECKER
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<PAGE>
(SEAL)
--------------------------------
EMILY W. FITZGERALD
(SEAL)
--------------------------------
ANN F. BROWN, CUSTODIAN FOR
ROBERT F. BROWN
(SEAL)
--------------------------------
ANN F. BROWN, CUSTODIAN FOR
WILLIAM F. BROWN
(SEAL)
--------------------------------
E. B. FITZGERALD, IV, CUSTODIAN FOR
VICTORIA CREWS FITZGERALD
(SEAL)
--------------------------------
E. B. FITZGERALD, IV, CUSTODIAN FOR
EDMOND B. FITZGERALD, V
(SEAL)
--------------------------------
GREGORY F. SMITH, CUSTODIAN FOR
LINDSAY ELAINE SMITH
(SEAL)
--------------------------------
GREGORY F. SMITH, CUSTODIAN FOR
WINNIE RENEE SMITH
(SEAL)
--------------------------------
WINNIE S. LEIENDECKER, CUSTODIAN FOR
KATHRYN FITZGERALD LEIENDECKER
(SEAL)
--------------------------------
WINNIE S. LEIENDECKER, CUSTODIAN FOR
EMILY SUZANNE LEIENDECKER
(SEAL)
--------------------------------
WINNIE S. LEIENDECKER, CUSTODIAN FOR
SAMUEL THOMAS LEIENDECKER
<PAGE>
Exhibit 2.18
STOCK PURCHASE AGREEMENT
DATED AS OF DECEMBER 23, 1999
BY AND AMONG
MJD VENTURES, INC.,
TPG COMMUNICATIONS, INC.,
TPG PARTNERS, L.P.,
TPG PARALLEL I, L.P.,
J. MILTON LEWIS
AND
ROBERT DI PAULI
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1. DEFINITIONS............................................................................1
Section 1.1 Definitions.......................................................................1
Section 1.2 Clarifications....................................................................7
ARTICLE 2. PURCHASE AND SALE OF SHARES............................................................7
Section 2.1 Purchase and Sale of Shares.......................................................7
Section 2.2 Purchase Price....................................................................7
Section 2.3 Determination of Adjustment Assets and Adjustment Liabilities;
Determination of Capital Expenditure Adjustment...................................8
Section 2.4 Closing Place; Date and Time.....................................................11
Section 2.5 Deliveries at the Closing........................................................12
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND TPGC................................13
Section 3.1 Organization and Good Standing...................................................13
Section 3.2 Authority; No Consents or Governmental Authorizations;
No Breach of Statute or Contract; Enforceability.................................13
Section 3.3 Ownership of Shares..............................................................14
Section 3.4 Capitalization of TPGC and the Subsidiaries......................................14
Section 3.5 Telephone Exchange Assets........................................................15
Section 3.6 Tax Matters......................................................................15
Section 3.7 Employee Benefit Plans...........................................................16
Section 3.8 Broker's or Finder's Fees........................................................18
Section 3.9 Financial Statements.............................................................18
Section 3.10 Accounts Receivable..............................................................18
Section 3.11 Access Lines and Exchanges.......................................................19
Section 3.12 Absence of Undisclosed Liabilities...............................................19
Section 3.13 Existing Condition...............................................................19
Section 3.14 Title to Properties..............................................................20
Section 3.15 Litigation.......................................................................20
Section 3.16 Environmental Laws; Compliance with Law..........................................21
Section 3.17 Tariffs; FCC Licenses; Non-FCC Authorizations....................................21
Section 3.18 Unions; Employees................................................................22
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 3.19 Transactions with Affiliates.....................................................23
Section 3.20 Year 2000........................................................................23
Section 3.21 Contracts and Commitments........................................................23
Section 3.22 Disclosure Schedule..............................................................23
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BUYER...............................................24
Section 4.1 Organization, Standing and Authority.............................................24
Section 4.2 Authority; No Consents or Governmental Authorizations;
No Breach of Statute or Contract; Enforceability.................................24
Section 4.3 Broker's or Finder's Fees........................................................25
Section 4.4 Purchase for Investment..........................................................25
Section 4.5 Capital Resources................................................................25
ARTICLE 5. CERTAIN AGREEMENTS....................................................................25
Section 5.1 Conduct of the Business..........................................................25
Section 5.2 Access to Information............................................................27
Section 5.3 Efforts; Further Assurances; Permits.............................................28
Section 5.4 Books and Records................................................................29
Section 5.5 FCC Consents.....................................................................29
Section 5.6 Non-FCC Consents.................................................................30
Section 5.7 HSR Act Review...................................................................30
Section 5.8 Tax Matters......................................................................31
Section 5.9 Confidentiality of Information...................................................32
Section 5.10 Effect of Due Diligence and Related Matters......................................32
Section 5.11 Texas Pacific Group and TPG Names................................................32
Section 5.12 Environmental Issues.............................................................33
Section 5.13 Payment of Dividends; Inter-LATA Subsidy.........................................33
Section 5.14 Financing........................................................................34
ARTICLE 6. CONDITIONS TO CLOSING.................................................................34
Section 6.1 Conditions to Obligation of Buyer................................................34
Section 6.2 Conditions to Obligations of the Sellers.........................................34
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 7. INDEMNIFICATION.......................................................................35
Section 7.1 Indemnification by the Sellers....................................................35
Section 7.2 Indemnification by Buyer..........................................................36
Section 7.3 Survival of Representations and Warranties........................................36
Section 7.4 Method of Asserting Claims........................................................37
Section 7.5 Limitations on Indemnification....................................................38
ARTICLE 8. TERMINATION OF AGREEMENT; PAYMENT OF EXPENSES; WAIVER OF CONDITIONS...................39
Section 8.1 Termination of Agreement.........................................................39
Section 8.2 Payment of Expenses; Waiver of Conditions........................................40
ARTICLE 9. MISCELLANEOUS.........................................................................40
Section 9.1 Amendments.......................................................................40
Section 9.2 Fees and Expenses................................................................40
Section 9.3 Public Announcements.............................................................40
Section 9.4 Governing Law....................................................................40
Section 9.5 Notices..........................................................................40
Section 9.6 Assignment and Binding Effect....................................................42
Section 9.7 Entire Agreement.................................................................42
Section 9.8 Severability.....................................................................42
Section 9.9 Counterparts.....................................................................42
Section 9.10 Exclusive Benefits...............................................................42
Section 9.11 Delays or Omissions..............................................................42
Section 9.12 Construction.....................................................................42
</TABLE>
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of December
23, 1999, and is entered into by and among TPG PARTNERS, L.P., a Delaware
limited partnership, TPG PARALLEL I, L.P., a Delaware limited partnership, J.
MILTON LEWIS and ROBERT DI PAULI (being sometimes referred to herein
individually as a "Seller" and collectively as the "Sellers"), TPG
COMMUNICATIONS, INC., a Delaware corporation ("TPGC"), and MJD VENTURES, INC., a
Delaware corporation ("Buyer").
WITNESSETH:
WHEREAS, the Sellers own 1,000,000 shares of the issued and outstanding
Common Stock, par value $0.01 per share, of TPGC (the "Shares"), representing
all of the issued and outstanding shares of capital stock in TPGC;
WHEREAS, TPGC and the Subsidiaries (as defined herein) possess certain
rights to provide and operate wireline telecommunications services pursuant to
operating authorities issued by the public utilities commissions or similar
authorities of various states, and own certain assets used to provide such
services in the Telephone Exchanges (as defined herein); and
WHEREAS, the Sellers wish to sell, assign, convey and transfer to Buyer
the Shares and Buyer wishes to purchase the Shares upon the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of the promises and the respective
covenants, agreements, representations and warranties herein contained, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE 1. DEFINITIONS.
Section 1.1 DEFINITIONS. The following terms used in this Agreement shall
have the respective meanings set forth below:
"Accountant" shall have the meaning set forth in Section 2.3(f).
"Accounts Receivable" shall mean accounts receivable arising from the
operation of the Business that have been earned by TPGC or any of the
Subsidiaries for the provision of service on or before the Closing Date.
"Adjustment Assets" shall have the meaning set forth in Section 2.3(b).
"Adjustment Liabilities" shall have the meaning set forth in Section
2.3(b).
"Agreement" shall have the meaning set forth in the introductory paragraph
hereof.
"APSC" shall mean the Alabama Public Service Commission.
<PAGE>
"Assets" shall mean all the tangible and intangible assets of TPGC and the
Subsidiaries used or held for use in connection with the conduct of the Business
or operations of the Telephone Exchanges.
"Base Purchase Price" shall have the meaning set forth in Section 2.2.
"Benefit Plan" shall mean any pension, retirement, profit-sharing,
deferred compensation, vacation, severance, bonus, incentive, medical, vision,
dental, disability, life insurance or other employee benefit plan as defined in
Section 3(3) of ERISA or any material, non-ERISA covered benefit plan to which
TPGC or any entity related to TPGC (under the terms of Sections 414 (b), (c) or
(m) of the Code) contributes or which TPGC or any entity related to TPGC (under
the terms of Sections 414 (b), (c) or (m) of the Code) sponsors or maintains.
"Books and Records" shall mean all of TPGC's and each of the Subsidiaries'
available customer or subscriber lists and records, accounts and billing records
(including a copy of the general ledger and the summary trial balances), CPRs,
equipment records, plans, blueprints, specifications, designs, drawings,
surveys, engineering reports, personnel records (where applicable), FCC
Licenses, Non-FCC Authorizations, permits, authorizations, licenses and
agreements with any other Governmental Entity and all other documents, computer
data and records (including records and files on computer disks or stored
electronically) relating to TPGC and its Subsidiaries.
"Business" shall mean the business of providing in the geographic area
comprising the Telephone Exchanges (i) local exchange, exchange access,
intraLATA toll and interLATA telecommunications services to end users, including
any prepaid services, (ii) exchange access telecommunications services to
interexchange carriers and other local exchange carriers, (iii) retail sales of
telephone equipment and products and (iv) non-tariffed public communications
(pay telephones) and commercial telecommunications services facilities leasing,
as currently being provided by TPGC and the Subsidiaries.
"Capital Expenditure Adjustment" shall have the meaning set forth in
Section 2.2.
"Cap-X Reimbursement Date" shall mean that day which is the 30th day after
the date of the Required Consent Notice.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Claim Notice" shall have the meaning set forth in Section 7.4(a).
"Closing" shall have the meaning set forth in Section 2.4.
"Closing Balance Sheet" shall have the meaning set forth in Section
2.3(d).
"Closing Capital Expenditure Adjustment Statement" shall have the meaning
set forth in Section 2.3(d).
"Closing Cash Payments" shall have the meaning set forth in Section
2.2(a).
- 2 -
<PAGE>
"Closing Date" shall have the meaning set forth in Section 2.4.
"CoBank Loan Agreement" shall mean that certain Loan Agreement dated as of
April 11, 1996, as amended, by and between TPG Finance Corporation and CoBank,
ACB ("CoBank") and the related documents entered into in connection therewith,
including the inter-company loans and notes by and among the Subsidiaries of
TPGC.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean the common stock, par value $0.01 per share, of
TPGC.
"Confidentiality Agreement" shall mean the confidentiality letter
agreement, dated as of September 14, 1999, by and between Buyer and TPGC.
"Consents" shall mean the consents, permits, approvals, orders or
authorizations of third parties necessary to transfer the Shares to Buyer or
otherwise to consummate the transactions contemplated by this Agreement (other
than the Required Consents).
"CPRs" shall have the meaning set forth in Section 3.5.
"Di Pauli Agreement" shall have the meaning set forth in Section 3.12 of
the Disclosure Schedule.
"Disclosure Schedule" shall mean the Disclosure Schedule annexed hereto,
including the Introduction thereto.
"Effective Time" shall mean 12:01 a.m., Eastern Standard Time, on the
Closing Date.
"Environmental Law" shall mean any law, statute, ordinance, decree, order,
judgment, common law, rule, regulation, permit or permit condition, or any other
binding requirement of lawful government authority, pertaining to the protection
of the environment, human health or worker safety, including but not limited to
any such requirements affecting land use, emissions, discharges or releases to
air, soil, surface water, groundwater, or to the emission, discharge, or release
of any pollutant, contaminant, or Hazardous Material, or to any other
environmental matter, including without limitation, the following laws, as the
same may be amended and in effect from time to time: (a) The Clean Air Act; (b)
the Clean Water Act; (c) the Resource Conservation and Recovery Act; (d) CERCLA;
(e) the Safe Drinking Water Act; (f) the Toxic Substances Control Act; (g) the
Oil Pollution Act; (h) the Emergency Planning and Community Right to Know Act;
and (i) the Hazardous Materials Transportation Act; and all equivalent state and
local laws and any regulations thereunder.
"Equity Interests" means any and all shares, interests or other equivalent
interests (however designated) in the equity of any Person, including capital
stock, partnership interests and membership interests, and including any rights,
options or warrants with respect thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
- 3 -
<PAGE>
"FCC" shall mean the Federal Communications Commission or any other
Federal agency which succeeds in whole or in part to its jurisdiction so far as
the subject matter of this Agreement is concerned.
"FCC Consents" shall have the meaning set forth in Section 5.5.
"FCC Licenses" shall mean all licenses, certificates, permits or other
authorizations granted to TPGC or any of the Subsidiaries by the FCC that are
used in the conduct of the Business.
"Financing" shall have the meaning set forth in Section 4.5.
"FPSC" shall mean the Florida Public Service Commission.
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time in the United States of America, consistently applied.
"Governmental Entity" shall mean any court or any federal, state, local or
foreign governmental, legislative or regulatory body, agency, department,
authority or instrumentality.
"GPSC" shall mean the Georgia Public Service Commission.
"Hazardous Materials" shall mean (a) any pollutant, contaminant, toxic
substance, hazardous substance or waste, including, without limitation, any
petroleum or petroleum products, polychlorinated biphenyls, or asbestos, (b) any
hazardous substances as defined by ss. 101(14) of CERCLA and (c) any other
chemical, substance or waste that is regulated by any Governmental Entity under
any Environmental Law.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indebtedness for Borrowed Money" shall mean, without duplication, the
aggregate amount of all (i) indebtedness for money borrowed (including the
CoBank Loan Agreement) from Persons other than TPGC or any of its Subsidiaries;
(ii) obligations evidenced by bonds, debentures, notes or similar debt
instruments; and (iii) interest expense and other charges accrued but unpaid
with respect to any item included in (i) or (ii) hereof; provided, however,
Indebtedness for Borrowed Money shall not include (u) any amounts included in
the Adjustment Liabilities; (v) any prepayment penalty, on or relating to any of
such indebtedness which is payable as a result of any such indebtedness being
paid at the Closing; (w) performance bonds, sureties or other similar assurances
and guaranties and amounts available to be drawn under any outstanding letters
of credit so long as any such amounts are not called upon or drawn upon on or
prior to the Closing Date; (x) trade payables, (y) expenses accrued in the
ordinary course of business, or (z) customer advance payments and customer
deposits received in the ordinary course of business.
"Indemnifiable Losses" shall have the meaning set forth in Section 7.1.
"Indemnitee" shall have the meaning set forth in Section 7.4.
- 4 -
<PAGE>
"Indemnitor" shall have the meaning set forth in Section 7.4.
"Lewis Agreement" shall have the meaning set forth in Section 3.12 of the
Disclosure Schedule.
"Lien" shall mean, with respect to any Asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such Asset.
"Material Adverse Effect" shall mean a material adverse effect on the
financial condition, Assets or results of operations of the Business, other than
effects relating to or arising from (i) the economy of the United States
generally or of any one or more of the States of Alabama, Florida and Georgia in
particular, (ii) any disruption or adverse change in the financial or capital
markets generally, other than a material disruption or adverse change which
results in a general banking moratorium being declared by either the Federal or
New York State authorities; or (iii) events or circumstances that affect the
Business in the same manner and to the same extent as other businesses in the
telecommunications industry generally.
"Multiemployer Plan" shall mean each Benefit Plan that is a multiemployer
plan, as defined in Section 3(37) of ERISA.
"Non-FCC Authorizations" shall mean all licenses, certificates, permits,
consents, approvals, or other authorizations granted to TPGC or any of the
Subsidiaries by the FPSC, APSC or GPSC, that are used in or relate to the
conduct of the Business.
"Non-FCC Consents" shall have the meaning set forth in Section 5.6.
"Notice Period" shall have the meaning set forth in Section 7.4(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Performance Plan" shall have the meaning set forth in Section 3.12 of the
Disclosure Schedule.
"Permitted Lien" shall mean (a) mechanics', carriers', workers' and
repairmens' Liens, purchase money security interests and other similar Liens
arising or incurred in the ordinary course of business related to obligations as
to which (i) there is no default on the part of TPGC or any of the Subsidiaries
and (ii) neither TPGC nor any of the Subsidiaries has received notice of the
commencement of foreclosure actions with regard thereto; (b) Liens for current
Taxes and assessments not yet delinquent, or the amount or validity of which is
being contested in good faith by appropriate proceedings during which collection
or enforcement against the relevant property is stayed; (c) applicable zoning
laws and ordinances and municipal regulations and rights reserved to or vested
in any Governmental Entity to control or regulate real property and realty
rights; (d) Liens set forth in TPGC's or any of its Subsidiaries' continuing
property records; and (e) any other Liens that do not materially interfere with
the operation of the Asset which is subject to such Lien.
- 5 -
<PAGE>
"Person" shall mean an individual, a corporation, a partnership, a limited
liability company, an association, a trust or other entity or organization,
including a Governmental Entity or political subdivision or an agency or
instrumentality thereof.
"Plan Participant" shall mean any Person holding rights to acquire options
pursuant to the Performance Plan.
"Preliminary Balance Sheet" shall have the meaning set forth in Section
2.3(c).
"Preliminary Capital Expenditure Adjustment Statement" shall have the
meaning set forth in Section 2.3(c).
"Purchase Price" shall have the meaning set forth in Section 2.2.
"Required Consent Notice" shall have the meaning set forth in Section 2.4.
"Required Consents" shall mean the FCC Consents, the Non-FCC Consents and
any consents required pursuant to the HSR Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Sellers" shall have the meaning set forth in the introductory paragraph
hereof.
"Sellers' Adjustment Dispute Report" shall have the meaning set forth in
Section 2.3(e).
"Sellers' Dispute Report" shall have the meaning set forth in Section
2.3(e).
"Sellers' Expenses" shall mean all out-of-pocket costs, expenses, legal
fees, accounting fees, broker's fees (including the fees of Donaldson, Lufkin &
Jenrette Securities Corporation), and other payments incurred by Sellers, TPGC
or any of its Subsidiaries in connection with the sale of the Shares, whether
incurred in connection with the transactions with Buyer contemplated by this
Agreement or in connection with the preparation for or offer of the Shares for
sale or any discussions or negotiations with, or due diligence investigations
by, other possible parties to any sale, recapitalization or merger, transaction,
or otherwise, including any prepayment penalties on or relating to any
Indebtedness for Borrowed Money which are payable as a result of any such
indebtedness being paid at the Closing; provided, however, Sellers' Expenses
shall not include any payments, fees or expenses that Buyer is obligated to pay
hereunder, including, without limitation, any transfer taxes, filing fees or
other similar expenses, fees and liabilities resulting from the transactions
contemplated by this Agreement.
"St. Joe" shall mean St. Joe Communications, Inc., a wholly-owned
subsidiary of TPGC.
"St. Joe Balance Sheet" and "St. Joe Balance Sheet Date" shall have the
respective meanings set forth in Section 3.9.
"Stock Option Holder" shall mean any Person holding any options to acquire
shares of Common Stock pursuant to the Di Pauli Agreement or the Lewis
Agreement.
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"Subsidiaries" shall mean the corporations identified as such in Section
3.1 of the Disclosure Schedule.
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
federal, state, local or foreign, including without limitation all net income,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment (including withholding,
payroll and employment taxes required to be withheld with respect to income paid
to employees), excise, estimated, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
capital stock, social security (or similar), unemployment, disability,
registration, value added, alternative or add-on minimum, real property,
personal property or other taxes, customs, duties, fees, assessments or charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts imposed by any taxing authority (federal, state,
local or foreign).
"Tax Returns" shall mean all returns, declarations, reports, claims for
refund, statements and other documents required or permitted to be filed with
any Governmental Entity in respect of any Tax and "Tax Return" shall mean one of
the foregoing Tax Returns.
"Telephone Exchanges" shall mean the telephone exchanges served by the
Subsidiaries, including without limitation those exchanges listed in Section
3.11 of the Disclosure Schedule.
"Termination Date" shall have the meaning set forth in Section 8.1.
"Welfare Plan" shall mean any "employee welfare benefit plan" as such term
is defined in Section 3(1) of ERISA.
"Working Capital" shall have the meaning set forth in Section 2.3(a).
"Working Capital Adjustment" shall have the meaning set forth in Section
2.3(a).
Section 1.2 CLARIFICATIONS. Words used herein, regardless of the gender
and number specifically used, shall be deemed and construed to include any other
gender and any other number as the context requires. Use of the word "including"
herein shall be deemed and construed to mean "including but not limited to."
Except as specifically otherwise provided in this Agreement in a particular
instance, a reference to a Section or Schedule is a reference to a Section of
this Agreement or a Schedule included within the Disclosure Schedule hereto, and
the terms "hereof," "herein" and other like terms refer to this Agreement as a
whole, including the Disclosure Schedule hereto, and not solely to any
particular part hereof.
ARTICLE 2. PURCHASE AND SALE OF SHARES.
Section 2.1 PURCHASE AND SALE OF SHARES. On the Closing Date, subject to
the terms and conditions hereinafter set forth, the Sellers shall sell, and
Buyer shall purchase, all of the Shares.
Section 2.2 PURCHASE PRICE. The aggregate purchase price (the "Purchase
Price") to be paid by Buyer for the Shares shall be $210,000,000 minus the
amount of Indebtedness for Borrowed Money of TPGC and the Subsidiaries, on a
consolidated basis, outstanding as of the Effective Time (including interest
payable, the current portion of long term debt and revolver
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debt) (the "Base Purchase Price"), (i) plus or minus the Working Capital
Adjustment determined as of the Effective Time in accordance with Section 2.3
hereof and (ii) plus, if the Closing does not occur prior to the Cap-X
Reimbursement Date, the aggregate amount of capital expenditures expended in
cash by TPGC or any of its Subsidiaries from and after the Cap-X Reimbursement
Date until the Closing (the "Capital Expenditure Adjustment"). The Purchase
Price shall be paid by Buyer to the Sellers as follows:
(a) CLOSING CASH PAYMENTS. Buyer shall pay or cause to be paid at
the Closing (the "Closing Cash Payments"), by federal wire transfer of
immediately available funds pursuant to wire instructions provided by the
Sellers, which wire instructions shall be delivered at least two days prior to
Closing: (i) to the Sellers, each Stock Option Holder and each Plan Participant
as set forth in such wire instructions the Base Purchase Price, as adjusted by
the Working Capital Adjustment determined at Closing on the basis of the
Preliminary Balance Sheet, plus the Capital Expenditure Adjustment if and to the
extent payable, determined at the Closing on the basis of the Preliminary
Capital Expenditure Statement; (ii) to the holders of Indebtedness for Borrowed
Money, the amount of Indebtedness for Borrowed Money outstanding as of the
Effective Time; and (iii) to the holder or obligee thereof, any Adjustment
Liability which is due and payable as of the Effective Time, including, without
limitation, any Sellers' Expenses.
(b) FINAL ADJUSTMENT. If the Purchase Price as finally determined in
accordance with Section 2.3(e) or Section 2.3(f) is greater than the Closing
Cash Payments, then Buyer shall pay to the Sellers an amount equal to such
excess within five days after the date on which the Working Capital Adjustment
and the Capital Expenditure Adjustment as of the Closing Date are so finally
determined. If the Purchase Price as finally determined is less than the Closing
Cash Payments at the Closing, then the Sellers shall pay to Buyer an amount
equal to such difference within five days after the date on which the Working
Capital Adjustment and the Capital Expenditure Adjustment, as of the Closing
Date, are finally determined in accordance with Section 2.3(e) or Section
2.3(f).
Section 2.3 DETERMINATION OF ADJUSTMENT ASSETS AND ADJUSTMENT
LIABILITIES; DETERMINATION OF CAPITAL EXPENDITURE ADJUSTMENT.
(a) WORKING CAPITAL. For purposes of this Agreement, "Working
Capital" shall mean Adjustment Assets less the sum of (i) Adjustment Liabilities
and (ii) $2,200,000, and "Working Capital Adjustment" shall mean the amount
determined as provided in the following sentence. If the Working Capital is
positive, then the Base Purchase Price shall be increased by the amount of such
positive amount; or if the Working Capital is negative, then the Base Purchase
Price shall be reduced by such negative amount.
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(b) DEFINITION OF ADJUSTMENT ASSETS AND ADJUSTMENT LIABILITIES.
"Adjustment Assets" shall mean, without duplication, all current assets of TPGC
and the Subsidiaries as of the Effective Time, determined in accordance with
GAAP, including, but not limited to, all cash, cash equivalents and Accounts
Receivable, and "Adjustment Liabilities" shall mean, without duplication, all
current liabilities of TPGC and the Subsidiaries as of the Effective Time,
determined in accordance with GAAP, which, notwithstanding the foregoing, shall
include Sellers' Expenses that have not been paid by TPGC or any of its
Subsidiaries prior to the Closing Date, but shall exclude (i) any Indebtedness
for Borrowed Money with respect to which a deduction has been made in
calculating the Purchase Price in Section 2.2; (ii) any transfer taxes, filing
fees or other similar expenses, fees and liabilities resulting from the
transactions contemplated by this Agreement that Buyer is obligated to pay
hereunder; and (iii) any amounts in respect of capital expenditures incurred by
TPGC or any of the Subsidiaries after the Cap-X Reimbursement Date, which are
accrued but remain unpaid, subject to the following provisions:
(i) Items that may be considered prepaid or accrued, as
applicable, as of the Effective Time, shall include, to the extent applicable
and in accordance with GAAP, business and license fees; utility charges, fees,
and deposits; real and personal property taxes and assessments levied against
the Assets; property and equipment rentals and other payments (including
deposits) under leases; applicable copyright or other fees; sales and service
charges; Taxes which are not due and payable as of the Closing Date; employee
compensation, including wages, salaries, accrued sick leave, severance pay, and
earned vacation time; and similar prepaid and deferred items;
(ii) Accounts Receivable shall be included in Adjustment
Assets net of reserves for doubtful accounts, which amounts shall be calculated
in a manner consistent with GAAP and the accounting policies of TPGC and the
Subsidiaries; and
(iii) To the extent consistent with GAAP, revenues and
expenses shall be treated as prepaid or accrued so as to reflect the principle
that revenues and expenses attributable to the period prior to the Effective
Time shall be for the account of the Sellers and revenues and expenses
attributable to the period after the Effective Time shall be for the account of
Buyer.
(c) PRELIMINARY BALANCE SHEET; PRELIMINARY CAPITAL
EXPENDITURE ADJUSTMENT STATEMENT.
(i) At least ten (10) days prior to the Closing, the Sellers
shall prepare and deliver to Buyer an estimated consolidated balance sheet of
TPGC and the Subsidiaries as of the Closing Date, certified to his knowledge to
be accurate and to have been prepared in accordance with the terms of this
Agreement by James Faison (without personal liability), Vice
President/Controller of TPGC (the "Preliminary Balance Sheet"). The Preliminary
Balance Sheet shall be prepared by the Sellers in good faith and shall be
accompanied by all information reasonably necessary to determine the amount of
Working Capital as of the Effective Time, to the extent such amounts can be
determined or estimated as of the date of the Preliminary Balance Sheet. The
parties shall negotiate in good faith to resolve any dispute and to reach an
agreement on the amount of the Working Capital Adjustment (which amount shall be
subject to final determination as provided in Section 2.3(d), (e) and (f)).
Notwithstanding the foregoing, to the
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extent that the parties do not reach an agreement on the Working Capital
Adjustment by the Closing, then the Working Capital Adjustment set forth in the
Preliminary Balance Sheet shall be used in determining the Closing Cash
Payments.
(ii) At least ten (10) days prior to the Closing, the Sellers
shall prepare and deliver to Buyer their estimate of the Capital Expenditure
Adjustment as of the Closing Date, to the extent it is payable in accordance
with Section 2.2 hereof (the "Preliminary Capital Expenditure Adjustment
Statement"). The Preliminary Capital Expenditure Adjustment Statement shall be
prepared by the Sellers in good faith and shall be accompanied by all
information reasonably necessary to determine the Capital Expenditure Adjustment
as of the Effective Time, to the extent such amounts can be determined or
estimated as of the date of the Closing. The parties shall negotiate in good
faith to resolve any dispute and to reach an agreement on the amount of the
Capital Expenditure Adjustment prior to Closing(which amount shall be subject to
final determination as provided in Section 2.3(d), (e) and (f)). Notwithstanding
the foregoing, to the extent that the parties do not reach an agreement on the
Capital Expenditure Adjustment by the Closing, then the Capital Expenditure
Adjustment set forth in the Preliminary Capital Expenditure Adjustment Statement
shall be used in determining the Closing Cash Payments.
(d) CLOSING BALANCE SHEET; CLOSING CAPITAL EXPENDITURE ADJUSTMENT
STATEMENT.
(i) Within 60 days after the Closing Date, Buyer shall prepare
and deliver to the Sellers an unaudited consolidated balance sheet of TPGC and
the Subsidiaries as of the Closing Date, certified to his knowledge to be
accurate and to have been prepared in accordance with the terms of this
Agreement by the chief financial officer (without personal liability) of Buyer
(the "Closing Balance Sheet"). The Closing Balance Sheet shall be prepared by
Buyer in good faith and shall be accompanied by all information reasonably
necessary to determine the amount of Working Capital as of the Effective Time.
The Sellers shall cooperate with Buyer in the preparation of the Closing Balance
Sheet. In the event that Buyer fails to deliver the Closing Balance Sheet within
60 days after the Closing Date, the Preliminary Balance Sheet shall be deemed to
be the Closing Balance Sheet and shall be deemed to be delivered to the Sellers
by Buyer on the 60th day following the Closing Date.
(ii) Within 60 days after the Closing Date, Buyer shall
prepare and deliver to the Sellers its estimate of the Capital Expenditure
Adjustment as of the Closing Date, to the extent it is payable in accordance
with Section 2.2 hereof (the "Closing Capital Expenditure Adjustment
Statement"). The Closing Capital Expenditure Adjustment Statement shall be
prepared by Buyer in good faith and shall be accompanied by all information
reasonably necessary to determine the Capital Expenditure Adjustment as of the
Effective Time. The Sellers shall cooperate with Buyer in the preparation of the
Closing Capital Expenditure Adjustment Statement. In the event that Buyer fails
to deliver the Closing Capital Expenditure Adjustment Statement within 60 days
after the Closing Date, the Preliminary Capital Expenditure Adjustment Statement
shall be deemed to be the Closing Capital Expenditure Adjustment Statement and
shall be deemed to be delivered to the Sellers by Buyer on the 60th day
following the Closing Date.
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(e) SELLERS' RIGHT TO OBJECT.
(i) Buyer shall allow the Sellers and their agents access at
all reasonable times after the Closing Date to the books, records and accounts
of TPGC and the Subsidiaries to allow the Sellers to examine the accuracy of the
Closing Balance Sheet. Within 30 days after the date that the Closing Balance
Sheet is delivered by Buyer to the Sellers pursuant to Section 2.3(d)(i) hereof,
the Sellers shall complete their examination thereof and may deliver to Buyer a
written report setting forth any proposed adjustments to the Closing Balance
Sheet (the "Sellers' Dispute Report"). If the Sellers notify Buyer of their
acceptance of the amount of Working Capital as of the Effective Time shown on
the Closing Balance Sheet, or if the Sellers fail to deliver a report of
proposed adjustments to the Closing Balance Sheet within the 30 day period
specified in the preceding sentence, the amount of Working Capital as of the
Effective Time shown on the Closing Balance Sheet shall be conclusive and
binding on the parties as of the last day of such 30 day period.
(ii) Buyer shall also allow the Sellers and their agents
access at all reasonable times after the Closing Date to the books, records and
accounts of TPGC and the Subsidiaries to allow the Sellers to examine the
accuracy of the Closing Capital Expenditure Adjustment Statement. Within 30 days
after the date that the Closing Capital Expenditure Adjustment Statement is
delivered by Buyer to the Sellers pursuant to Section 2.3(d)(ii) hereof, the
Sellers shall complete their examination thereof and may deliver to Buyer a
written report setting forth any proposed adjustments to the Closing Capital
Expenditure Adjustment Statement (the "Sellers' Adjustment Dispute Report"). If
the Sellers notify Buyer of their acceptance of the amount of the Capital
Expenditure Adjustment as of the Effective Time shown on the Closing Capital
Expenditure Adjustment Statement, or if the Sellers fail to deliver a report of
proposed adjustments to the Closing Capital Expenditure Adjustment Statement
within the 30 day period specified in the preceding sentence, the amount of the
Closing Capital Expenditure Adjustment Statement as of the Effective Time shown
on the Closing Capital Expenditure Adjustment Statement shall be conclusive and
binding on the parties as of the last day of such 30 day period.
(f) RESOLUTION OF DISPUTES. Buyer and the Sellers shall use good
faith efforts to resolve any dispute involving the amount of Working Capital and
the Capital Expenditure Adjustment. If the Sellers and Buyer fail to agree on
the amount of Working Capital and the Capital Expenditure Adjustment within 15
days after the Sellers' delivery of the Sellers' Dispute Report and Sellers'
Adjustment Dispute Report, as applicable, pursuant to Section 2.3(e), then Buyer
and the Sellers shall each set forth in writing such party's or parties'
determination of Working Capital and the Capital Expenditure Adjustment, and
they hereby jointly designate Arthur Andersen LLP (the "Accountant") to resolve
their dispute. The Accountant's resolution of the dispute shall be final and
binding on the parties, and a judgment may be entered thereon in any court of
competent jurisdiction. Any fees of the Accountant shall be shared by Buyer and
the Sellers in such percentage amounts as shall be determined based upon the
proportional differences between the Working Capital and the Capital Expenditure
Adjustment determined by the Accountant and the Working Capital and the Capital
Expenditure Adjustment determined by Buyer, on the one hand, and the Sellers, on
the other.
Section 2.4 CLOSING PLACE; DATE AND TIME. The closing of the purchase
and sale of the Shares (the "Closing") shall take place at the offices of
Dow, Lohnes & Albertson PLLC, 1200
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New Hampshire Avenue, N.W., Suite 800, Washington, D.C. 20036, or at such other
place as the parties may agree, at 9:00 a.m., local time, on the date designated
by the Sellers in a written notice delivered to Buyer pursuant to Section 9.5,
provided such date shall be at least five business days, but not more than 30
calendar days, after the date on which the Sellers shall have notified Buyer in
writing of their determination that all Required Consents have been obtained
(such notice, the "Required Consent Notice"), or at such other time as the
parties may agree (the "Closing Date"). Such Closing shall be deemed to have
occurred as of the Effective Time.
Section 2.5 DELIVERIES AT THE CLOSING.
(a) At the Closing, Buyer shall deliver the following to the
Sellers:
(i) the Closing Cash Payments by wire transfer of immediately
available funds to accounts designated by the Sellers in writing not later than
two business days before the Closing Date;
(ii) certified copies of resolutions duly adopted by Buyer
constituting all necessary corporate authorization for the consummation by Buyer
of the transactions contemplated by this Agreement;
(iii) the certificate required by Section 6.2(a);
(iv) certificates of incumbency for all relevant officers or
directors of Buyer executing this Agreement and any other documents pursuant to
this Agreement;
(v) an opinion or opinions of counsel to Buyer in form and
substance reasonably acceptable to the Sellers; and
(vi) such other certificates, instruments and documents as the
Sellers may reasonably request.
(b) At the Closing, the Sellers shall deliver the following to
Buyer:
(i) the certificates for all of the Shares, with stock powers
duly assigning them to Buyer;
(ii) the certificates required by Section 6.l(a);
(iii) certified copies of the Certificate of Incorporation and
By-laws of TPGC and each of the Subsidiaries and evidence of good standing of
each in its respective jurisdiction of incorporation and in each jurisdiction
where each is qualified to transact business as a foreign corporation;
(iv) the written resignations effective as of the Closing Date
of all directors and officers of TPGC and each of the Subsidiaries;
(v) an opinion or opinions of counsel to the Sellers in form
and substance reasonably acceptable to Buyer; and
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(vi) A certificate executed by each Seller, in a form
reasonably satisfactory to the Buyer, pursuant to Section 1.1445-2(b)(2) of the
Treasury Regulations, certifying that such Seller is not a foreign person;
(vii) copies of documentation evidencing the Required
Consents; and
(viii) such other certificates, instruments and documents as
Buyer may reasonably request.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND TPGC
The Sellers and TPGC jointly and severally (subject to Section 7.1(b))
hereby represent and warrant as follows to Buyer:
Section 3.1 ORGANIZATION AND GOOD STANDING.
(a) TPGC and each of the Subsidiaries are corporations duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and each has the full corporate power
and authority to conduct the Business as currently conducted by each and to own
and operate the Assets and properties now owned and operated by each. Section
3.1 of the Disclosure Schedule sets forth the full corporate name of each of the
Subsidiaries and the state of incorporation of TPGC and each of the Subsidiaries
and each other jurisdiction in which TPGC or the Subsidiaries is qualified to do
business. TPGC and the Subsidiaries are duly qualified and in good standing as a
foreign corporation in each jurisdiction listed in Section 3.1 of the Disclosure
Schedule, which are all the jurisdictions in which such qualification is
required, other than in such jurisdictions where the failure to be so qualified
would not have a Material Adverse Effect.
(b) The Sellers have delivered to Buyer true and correct copies of
the Certificate of Incorporation and By-laws of TPGC and each of the
Subsidiaries.
Section 3.2 AUTHORITY; NO CONSENTS OR GOVERNMENTAL AUTHORIZATIONS; NO
BREACH OF STATUTE OR CONTRACT; ENFORCEABILITY.
(a) TPGC and each Seller that is not an individual have the full
power and lawful authority to execute and deliver this Agreement and to
consummate and perform the transactions contemplated hereby in the manner herein
provided. Each Seller that is an individual has the full power and legal
capacity to execute and deliver this Agreement and to consummate and perform the
transactions contemplated hereby in the manner herein provided. The execution
and delivery of this Agreement by TPGC and each Seller that is not an individual
and the consummation and performance by TPGC and each such Seller of the
transactions contemplated hereby in the manner herein provided have been duly
and validly authorized by all necessary corporate or limited partnership action,
as the case may be.
(b) Subject to obtaining the Required Consents, neither the
execution and delivery by the Sellers and TPGC of this Agreement nor the
consummation and performance by the Sellers and TPGC of the transactions
contemplated hereby in the manner herein provided (i) require the approval,
consent, authorization or order of, or any filing, qualification or registration
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with or notice to, any Governmental Entity or any other third party, other than
(A) approvals, consents, authorizations, filings or notices of a character such
that a failure to obtain, file or give them would not singly or in the aggregate
have a Material Adverse Effect, and (B) approvals, consents, authorizations,
filings or notices which have been properly and validly obtained, made or given,
or (ii) conflict with or will result in an uncured or unwaived breach or
violation of any term or provision of, constitute a default under or will cause
the acceleration of any payments pursuant to (A) the Certificate of
Incorporation or By-laws of TPGC or any of the Subsidiaries, (B) any indenture,
mortgage, deed of trust, lease, note or note agreement or any other agreement or
instrument to which the Sellers, TPGC or any of the Subsidiaries is a party or
by which the Sellers, TPGC, any of the Subsidiaries or any of their Assets or
properties is bound, (C) any governmental license, franchise, permit,
certificate or other authorization held by the Sellers, TPGC, or any of the
Subsidiaries, including any FCC Licenses or any Non-FCC Authorization, or (D)
any law, judgment, order, writ, injunction, decision, decree, award, rule or
regulation of any court, arbitrator or Governmental Entity applicable to the
Sellers, TPGC, or any of the Subsidiaries the breach or violation of which
would, singly or in the aggregate, have a Material Adverse Effect.
(c) This Agreement has been duly executed and delivered by TPGC and
each of the Sellers and, when executed and delivered by Buyer, assuming the
enforceability of this Agreement upon Buyer, will be the legal, valid and
binding obligation of each of the Sellers and TPGC, and will be enforceable
against each of the Sellers and TPGC in accordance with its terms, except that
(i) such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws now or hereafter in
effect relating to creditors' rights 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.
Section 3.3 OWNERSHIP OF SHARES. The Shares are owned by the Sellers
beneficially and of record, free and clear of all mortgages, charges, liens,
pledges, claims, security interests, options or other encumbrances of any nature
whatsoever.
Section 3.4 CAPITALIZATION OF TPGC AND THE SUBSIDIARIES. The authorized
capital stock of TPGC consists of one million shares of Common Stock, all of
which are issued and outstanding on the date hereof. All of the Shares have been
duly authorized, are validly issued and outstanding, and are fully paid and
nonassessable. The Shares are owned beneficially and of record as shown in
Section 3.4 of the Disclosure Schedule and have not been issued in violation of
any federal or state securities laws. There are no preemptive rights with
respect to any of the Shares. The authorized capital stock of each of the
Subsidiaries and the ownership of their respective shares of stock are as shown
in Section 3.4 of the Disclosure Schedule. All of the outstanding shares of
stock of the Subsidiaries have been duly authorized, validly issued and are
fully paid and nonassessable and have not been issued in violation of any
federal or state securities laws. Except as shown in Section 3.4 of the
Disclosure Schedule, such shares of stock of the Subsidiaries are owned
beneficially and of record by the parties set forth on Section 3.4 of the
Disclosure Schedule, free and clear of all mortgages, charges, liens, pledges,
claims, security interests, options or other encumbrances of any nature
whatsoever. Except as disclosed in Section 3.4 of the Disclosure Schedule, there
are no outstanding agreements, subscriptions, options, warrants, convertible
securities, calls, commitments or rights of any kind (contingent or
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otherwise) pertaining to the issuance or purchase of any securities of TPGC or
any of the Subsidiaries. Except as disclosed in Section 3.4 of the Disclosure
Schedule, TPGC does not, directly or indirectly, own, of record or beneficially,
any Equity Interest in any Person or have the right or obligation to acquire,
any Equity Interests in any Person.
Section 3.5 TELEPHONE EXCHANGE ASSETS.
(a) The Assets are, and at the Closing will be, owned by TPGC and
the Subsidiaries, as applicable, and are free and clear of all Liens, except
Permitted Liens. Buyer has had the opportunity to review TPGC's and the
Subsidiaries' continuing property records (the "CPRs"). Buyer understands and
agrees that the Purchase Price shall not be adjusted, and no indemnification
claim may be made, for any discrepancies found in the CPRs.
(b) The Assets will include all assets of every type, nature and
description that relate to, arise from or are used or held for use by TPGC or
the Subsidiaries primarily in the operation of the Business as currently
operated by TPGC and the Subsidiaries, except for contracts that expire in
accordance with their terms prior to the Closing Date and are not renewed and
Assets that are not material and are disposed of in the ordinary course of
business. The Assets are in substantially good operating condition and repair
for the operation of the Business, as currently operated by TPGC and the
Subsidiaries, normal wear and tear excepted.
Section 3.6 TAX MATTERS.
(a) Except as set forth in Section 3.6 of the Disclosure Schedule,
each of TPGC and the Subsidiaries has duly and timely filed (or there has been
filed on their behalf) all material Tax Returns (including the consolidated
federal income Tax Return of TPGC and any state Tax Return that includes TPGC or
any Subsidiary on a consolidated, combined or unitary basis) required to be
filed by it in respect of any Taxes, and all Taxes owed by any of TPGC or the
Subsidiaries shown thereon or otherwise due have been properly accrued or timely
paid. All Tax Returns filed by TPGC or the Subsidiaries are accurate in all
material respects. TPGC and the Subsidiaries shall have accrued on the
Preliminary Balance Sheet reserves in accordance with GAAP adequate to satisfy
all liabilities for Taxes relating to TPGC and the Subsidiaries for periods
through the date of such balance sheet (without regard to deferred Taxes and
without regard to the materiality thereof).
(b) Except as set forth in Section 3.6 of the Disclosure Schedule,
neither TPGC nor any Subsidiary has executed any waiver or extensions of any
statute of limitations on the assessment or collection of any Tax or with
respect to any liability arising therefrom. Except as set forth in Section 3.6
of the Disclosure Schedule, none of the federal, state or local income Tax
Returns filed by TPGC or any Subsidiary during the prior three years has been
audited by any taxing authority. Except as set forth in Section 3.6 of the
Disclosure Schedule, (i) neither the IRS nor any other Governmental Entity has
asserted in writing, or to the knowledge of the Sellers and TPGC, threatened to
assert any deficiency or claim for additional Taxes against, or any adjustment
of Taxes relating to, any of TPGC or the Subsidiaries, and to the knowledge of
the Sellers and TPGC, no basis exists for any such deficiency, claim or
adjustment, and (ii) to the knowledge of the Sellers and TPGC, there are no
proposed reassessments of any property owned by TPGC or the Subsidiaries that
would affect the Taxes of any of TPGC or the Subsidiaries.
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(c) Neither TPGC nor any Subsidiary is subject to any accumulated
earnings tax penalty or personal holding company tax. To the knowledge of the
Sellers and TPGC, there are no Liens with respect to Taxes (except for Liens for
current Taxes and assessments not yet delinquent, or the amount or validity of
which is being contested in good faith by appropriate proceedings during which
collection or enforcement against the relevant property is stayed) upon any of
the Assets.
(d) Except as set forth in Section 3.6 of the Disclosure Schedule,
none of TPGC or the Subsidiaries has entered into any compensatory agreements
with respect to the performance of services which payment thereunder would
result in a non-deductible expense to such company pursuant to Section 280G of
the Code or an excise Tax to the recipient of such payment pursuant to Section
4999 of the Code. No acceleration of the vesting schedule for any property that
is substantially unvested within the meaning of the regulations under Section 83
of the Code will occur in connection with the transactions contemplated by this
Agreement.
(e) No consent under Section 341(f) of the Code has been filed with
respect to TPGC or any Subsidiary.
(f) Except as set forth in Section 3.6 of the Disclosure Schedule,
neither TPGC nor any Subsidiary has been at any time a member of any
partnership, joint venture or other arrangement or contract which is treated as
a partnership for federal, state, local or foreign tax purposes or the holder of
a beneficial interest in any trust for any period for which the statute of
limitations for any Tax has not expired.
(g) Each of TPGC and the Subsidiaries have withheld or collected and
paid over to the appropriate Governmental Entities or are properly holding for
such payment all material Taxes required by law to be withheld or collected.
(h) Except as set forth in Section 3.6 of the Disclosure Schedule,
as of the Closing Date there will be no tax sharing agreements or similar
arrangements with respect to or involving TPGC or any Subsidiary.
(i) Except as set forth in Section 3.6 of the Disclosure Schedule,
neither TPGC nor any Subsidiary has any (i) income reportable for a period
ending after the Closing Date but attributable to a transaction (E.G. an
installment sale) occurring in or a change in accounting method made for a
period ending on or prior to the Closing Date which resulted in a deferred
reporting of income from such transaction or from such change in accounting
method (other than a deferred intercompany transaction), or (ii) deferred gain
or loss arising out of any deferred intercompany transaction.
Section 3.7 EMPLOYEE BENEFIT PLAN. With respect to the Benefit Plans:
(a) Section 3.7(a) of the Disclosure Schedule includes a complete,
current and correct list of all material Benefit Plans.
(b) All Benefit Plans are administered substantially in accordance
with their terms and are in all material respects in compliance with all
applicable laws. All contributions which are required to have been paid with
respect to any Benefit Plan have been paid, and all
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contributions which have not been required to be paid with respect to any
Benefit Plan have been paid to such Benefit Plan or accrued in accordance with
the past custom and practice of TPGC.
(c) Except as listed in Section 3.7(c) of the Disclosure Schedule,
each Benefit Plan that is a Welfare Plan is funded through an insurance
contract.
(d) Except as set forth in Section 3.7(d) of the Disclosure
Schedule, no "reportable event" (as defined in Section 4043 of ERISA or the
regulations thereunder, excluding any event for which the PBGC has by regulation
waived the 30 day notice requirement) has occurred with respect to any Benefit
Plan.
(e) To the knowledge of the Sellers and TPGC, neither TPGC nor any
of the Subsidiaries has engaged in any "prohibited transaction" (as defined in
Section 4975 of the Code or Section 406 of ERISA) with respect to the Benefit
Plans, which could subject any of the Benefit Plans (or their trusts), TPGC or
any of the Subsidiaries to any material tax or material penalty under Section
4975 of the Code or Section 502(i) of ERISA.
(f) Except as set forth in Section 3.7(f) of the Disclosure
Schedule, none of the assets of the Benefit Plans are invested in any property
constituting "employer real property" or an "employer security" (within the
meaning of Section 407(d) of ERISA).
(g) Except as set forth in Section 3.7(g) of the Disclosure
Schedule, all contributions owed by TPGC or any of the Subsidiaries to any
Multiemployer Plan have been made or paid when due and no such contributions are
now owed or otherwise outstanding. Neither TPGC nor any of the Subsidiaries has
incurred or expects to incur any withdrawal liability under Subtitle E of Title
IV of ERISA to a Multiemployer Plan or would incur such withdrawal liability if
such entity were to cease being a contributing employer to such Multiemployer
Plan as of the Closing Date.
(h) TPGC has made available to Buyer correct and complete copies of
the plan documents, summary plan descriptions, the most recent IRS determination
letter, the most recent Form 5500 Annual Report and all related trust
agreements, administrative service contracts, insurance contracts and other
funding agreements with respect to each Benefit Plan.
(i) Except as set forth in Section 3.7(i) of the Disclosure
Schedule, no Benefit Plan contains any term that provides post-employment health
or welfare benefits, except as required by Sections 601-608 of ERISA. All
Benefit Plans that are tax-qualified "employee pension benefit plans" as such
term is defined in ERISA Section 3(2) are, or as of the Closing will be, fully
funded on a termination basis. All persons providing services to TPGC or any of
the Subsidiaries have been properly classified as employees or non-employees for
purposes of federal income tax withholding and eligibility for benefits under
any Benefit Plan, except where the failure to properly classify such
service-provider, individually or in the aggregate with other improper
classifications, would not have a Material Adverse Effect. No legal action or
government audit or investigation is pending, or, to the knowledge of Sellers
and TPGC, threatened against any Benefit Plan or TPGC or any of the Subsidiaries
with respect to any Benefit Plan.
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Section 3.8 BROKER'S OR FINDER'S FEES. Except as set forth in Section 3.8
of the Disclosure Schedule, no agent, broker, investment banker, Person or firm
acting on behalf of or under the authority of the Sellers is or will be
entitled, directly or indirectly, to any broker's or finder's fee or any other
commission or similar fee from any of the parties hereto in connection with any
of the transactions contemplated herein.
Section 3.9 FINANCIAL STATEMENTS.
(a) The consolidated balance sheets of St. Joe as of December 31,
1998, and December 31, 1997, the related statements of income and retained
earnings and cash flows and the notes thereto for the years then ended, audited
by KPMG Peat Marwick, independent certified public accountants, and the
unaudited consolidated balance sheets of St. Joe as of September 30, 1999 and
1998 and the related statements of income and retained earnings and cash flows
for the nine months then ended, correct and complete copies of all of which have
been delivered to Buyer, present fairly the financial position and assets and
liabilities of St. Joe and its consolidated subsidiaries as of their respective
dates, and the results of its operations and its cash flows for the fiscal
periods then ended, in conformity with GAAP consistently applied. All references
in this Agreement to the "St. Joe Balance Sheet" shall be deemed to refer to the
audited balance sheet of St. Joe as of December 31, 1998 (the "St. Joe Balance
Sheet Date").
(b) The unaudited balance sheets of TPGC as of December 31, 1998,
and December 31, 1997, the related statements of income for the years then
ended, and the unaudited balance sheet of TPGC as of November 30, 1999 and the
related statement of income for the eleven months then ended, correct and
complete copies of all of which have been delivered to Buyer, present fairly the
financial position and assets and liabilities of TPGC as of their respective
dates, and the results of its operations for the fiscal periods then ended, in
conformity with GAAP consistently applied. All references in this Agreement to
the "TPGC Balance Sheet" shall be deemed to refer to the unaudited balance sheet
of TPGC as of December 31, 1998 (the "TPGC Balance Sheet Date").
Section 3.10 ACCOUNTS RECEIVABLE.
(a) All Accounts Receivable reflected on the St. Joe Balance Sheet,
and all accounts receivable arising subsequent to the St. Joe Balance Sheet
Date, have arisen in the ordinary course of business, consistent with past
practice, and, to the knowledge of the Sellers and TPGC, are not subject to
defenses, set-offs or counterclaims. All of such accounts receivable are
generally due within 30 days after being accrued on the books of the
Subsidiaries and have been collected, or are collectible within 90 days after
billing, in the full aggregate recorded amounts thereof, less, in the case of
the accounts receivable reflected on the St. Joe Balance Sheet, the amount of
the allowance for doubtful accounts shown on the St. Joe Balance Sheet. The
allowance for doubtful accounts is in accordance with GAAP consistently applied.
(b) All Accounts Receivable reflected on the TPGC Balance Sheet, and
all accounts receivable arising subsequent to the TPGC Balance Sheet Date, have
arisen in the ordinary course of business, consistent with past practice, and,
to the knowledge of the Sellers and TPGC, are not subject to defenses, set-offs
or counterclaims. All of such accounts receivable are generally due within 30
days after being accrued on the books of the Subsidiaries
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and have been collected, or are collectible within 90 days after billing, in the
full aggregate recorded amounts thereof, less, in the case of the accounts
receivable reflected on the TPGC Balance Sheet, the amount of the allowance for
doubtful accounts shown on the TPGC Balance Sheet. The allowance for doubtful
accounts is in accordance with GAAP consistently applied.
Section 3.11 ACCESS LINES AND EXCHANGES. Section 3.11 of the Disclosure
Schedule sets forth the access lines (as such term is defined by the National
Exchange Carrier Association) in service for each of the Subsidiaries by
exchange as of September 30, 1999.
Section 3.12 ABSENCE OF UNDISCLOSED LIABILITIES. To the knowledge of the
Sellers and TPGC, except as disclosed in Section 3.12 of the Disclosure
Schedule, neither TPGC nor any of the Subsidiaries has any liabilities or
obligations, either accrued, absolute, contingent or otherwise, except:
(a) those liabilities or obligations set forth on the St. Joe
Balance Sheet and not heretofore paid or discharged;
(b) liabilities arising in the ordinary course of business under any
agreement, contract, commitment, lease or plan specifically disclosed on the
Disclosure Schedule or not required to be disclosed;
(c) those liabilities or obligations incurred, consistent with past
practice, in or as a result of the normal and ordinary course of business since
the St. Joe Balance Sheet Date; and
(d) those liabilities or obligations that would not reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect.
Section 3.13 EXISTING CONDITION. Except as disclosed in Section 3.13
of the Disclosure Schedule, since the St. Joe Balance Sheet Date, neither TPGC
nor any of the Subsidiaries has:
(a) (i) to the knowledge of the Sellers and TPGC, incurred any
liabilities, other than liabilities incurred in the ordinary course of business
consistent with past practice, or (ii) discharged or satisfied any lien or
encumbrance, or paid any liabilities, other than in the ordinary course of
business consistent with past practice, or failed to pay or discharge when due
any liabilities of which the failure to pay or discharge has caused or will
cause any material damage or risk of material loss to it or its Assets or
properties;
(b) sold, assigned or transferred any of its material Assets except
in the ordinary course of business consistent with past practice;
(c) created, incurred, assumed or guaranteed any indebtedness for
money borrowed, or mortgaged, pledged or subjected to any Lien (other than
Permitted Liens), any of its Assets;
(d) made or suffered any amendment or termination of any material
agreement, contract, commitment, lease or plan to which it is a party or by
which it is bound, or
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canceled, modified or waived any material debts or claims held by it, other than
in the ordinary course of business consistent with past practice;
(e) changed any of the material accounting principles followed by it
or the methods of applying such principles;
(f) made or promised any material increase in the salary or other
compensation payable or to become payable to any executive officer or other
employee of TPGC or any of the Subsidiaries other than in the ordinary course of
business or as contemplated under any Benefit Plan or employment arrangement
currently in effect;
(g) waived or released any material right or claim relating to TPGC
or any of the Subsidiaries or the Business; or
(h) entered into an agreement to do any of the things described in
the preceding clauses (a) through (g).
Section 3.14. TITLE TO PROPERTIES
(a) TPGC and each of the Subsidiaries has good, valid and marketable
title to all of their respective properties and Assets, real, personal and
mixed, free and clear of all Liens except Permitted Liens and those items
disclosed in Section 3.14 of the Disclosure Schedule. All owned or leased real
estate of TPGC and the Subsidiaries is listed on Section 3.14 of the Disclosure
Schedule. Each material lease to which TPGC or any of its Subsidiaries is a
party, is listed on Section 3.14 of the Disclosure Schedule and, to the
knowledge of the Sellers and TPGC, is in full force and effect and affords TPGC
or the Subsidiary, as the case may be, peaceful and undisturbed possession of
the subject matter of such lease, in accordance with the terms of such lease. No
material default or event of default on the part of TPGC or any of its
Subsidiaries or, to the knowledge of the Sellers and TPGC, on the part of the
other party thereto, exists under any material lease, and neither TPGC nor any
of its Subsidiaries has received any notice of material default under any
material lease.
(b) (i) To the knowledge of the Sellers and TPGC, TPGC and its
Subsidiaries are in material compliance with all zoning, land-use, building or
safety laws, ordinances, regulations or requirements or other laws or
regulations applicable to the operation of their owned or leased properties, and
(ii) TPGC and its Subsidiaries have not received any notice of violation with
which they have 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 TPGC and the Subsidiaries, taken as a whole.
Section 3.15 LITIGATION. Except as listed in Sections 3.15 and 3.17(d)
of the Disclosure Schedule, no litigation, arbitration, investigation or other
proceeding of or before any court, arbitrator or governmental or regulatory
official, body or authority is pending or, to the knowledge of the Sellers and
TPGC, threatened against TPGC or any of the Subsidiaries or their Assets,
properties or business, or the transactions contemplated by this Agreement,
other than (a) proceedings affecting the telephone industry generally, on a
national, state, regional or local basis, or (b) proceedings which would not
reasonably be expected to have a Material Adverse Effect.
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Section 3.16 ENVIRONMENTAL LAWS; COMPLIANCE WITH LAW.
(a) Except as disclosed in Section 3.16(a) of the Disclosure
Schedule, (i) TPGC's and the Subsidiaries' operations with respect to the
Telephone Exchanges have complied and comply in all material respects with all
applicable Environmental Laws as in effect on the date hereof; (ii) to the
knowledge of the Sellers and TPGC, the real property owned or leased by TPGC or
any of the Subsidiaries has complied and complies in all material respects with
all applicable Environmental Laws, except, in each case, where noncompliance
would not have a Material Adverse Effect; (iii) none of Sellers, TPGC and each
Subsidiary has, and to the knowledge of Sellers and TPGC, no other Person has,
stored, treated, disposed, or handled any Hazardous Materials on any real
property owned or leased by TPGC or any Subsidiary, except in material
compliance with all applicable Environmental Laws; and (iv) each of TPGC and
each Subsidiary has all material permits, licenses, and authorizations required
under applicable Environmental Laws for the operation of the Business.
(b) TPGC and each of the Subsidiaries have materially complied with
each, and are not in violation of any, law, ordinance, or governmental rule or
regulation to which they or their respective businesses, operations, Assets or
properties are subject and have not failed to materially comply with the
requirements and conditions of any material license, permit or authorization
necessary to the ownership of their respective Assets and properties or the
conduct of their business, including, without limitation, timely making any
required filing or timely providing any required notice.
(c) TPGC and Sellers have made available to Buyer all material
environmental reports, audits, non-compliance notices or responses to such
notices that are in their possession or the possession of TPGC or the
Subsidiaries.
Section 3.17 TARIFFS; FCC LICENSES; NON-FCC AUTHORIZATIONS.
(a) The regulatory tariffs applicable to TPGC and each of the
Subsidiaries stand in full force and effect on the date of this Agreement in
accordance with all material terms, and there is no outstanding notice of
cancellation, suspension or termination or, to the knowledge of the Sellers and
TPGC, cancellation, suspension or termination threatened in connection
therewith, and neither TPGC nor any of the Subsidiaries is subject to any
restrictions or conditions applicable to its regulatory tariffs that limit or
would limit the normal operation of the Business (other than restrictions or
conditions generally applicable to tariffs of that type). To the knowledge of
the Sellers and TPGC, neither TPGC nor any of the Subsidiaries is in violation
of the terms and conditions of any such tariffs in any manner that could
reasonably be expected to have a Material Adverse Effect.
(b) Section 3.17(b) of the Disclosure Schedule lists each FCC
License held by TPGC or any of the Subsidiaries as of the date hereof. Except as
otherwise set forth in Section 3.17(b) of the Disclosure Schedule, such FCC
Licenses constitute all FCC Licenses necessary or required for the conduct of
the Business. Except as otherwise set forth in Section 3.17(b) of the Disclosure
Schedule, each such FCC License is in full force and effect, and there is no
outstanding notice of cancellation, revocation or termination or, to the
knowledge of the Sellers and TPGC, cancellation, revocation or termination
threatened in connection therewith. None of
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such FCC Licenses is subject to any restrictions or conditions that limit the
operations of TPGC or any of the Subsidiaries (other than restrictions or
conditions generally applicable to licenses of that type).
(c) Section 3.17(c) of the Disclosure Schedule lists all material
Non-FCC Authorizations held by TPGC or any of the Subsidiaries as of the date
hereof. Except as set forth in Section 3.17(c) of the Disclosure Schedule, each
such Non-FCC Authorization is in full force and effect, and there is no
outstanding notice of cancellation, revocation or termination or, to the
knowledge of the Sellers and TPGC, cancellation, revocation or termination
threatened in connection therewith. None of such Non-FCC Authorizations is
subject to any restrictions or conditions that limit the operations of TPGC or
any of the Subsidiaries (other than restrictions or conditions generally
applicable to authorizations of that type).
(d) Except as set forth in Section 3.17(d) of the Disclosure
Schedule, there are no applications by TPGC or any of the Subsidiaries pending
before the FCC or any other regulatory authority relating to the Business or the
regulatory tariffs, FCC Licenses or Non-FCC Authorizations of TPGC or any of the
Subsidiaries as of the date hereof denial of which could reasonably be expected
to have a Material Adverse Effect as of the Closing Date. Except as set forth in
Section 3.17(d) of the Disclosure Schedule, to the knowledge of the Sellers and
TPGC, there are no complaints or petitions by others including any Governmental
Entities or proceedings pending or threatened before the FCC or any other
regulatory authority relating to the Business or the regulatory tariffs, FCC
Licenses or Non-FCC Authorizations of TPGC or any of the Subsidiaries as of the
date hereof which could reasonably be expected to have a Material Adverse Effect
as of the Closing Date, and TPGC and the Subsidiaries are in compliance with the
Communications Act of 1934, as amended, the rules and regulations of the FCC
thereunder and the state telecommunications laws and regulations applicable to
the Business, except for any noncompliance which could not reasonably be
expected to have a Material Adverse Effect.
Section 3.18. UNIONS; EMPLOYEES
(a) Except as set forth in Section 3.18 of the Disclosure Schedule,
there are no collective bargaining or other labor union agreements applicable to
any employees of TPGC or any of the Subsidiaries. As of the date hereof, no work
stoppage or labor dispute against TPGC or any of the Subsidiaries is pending or,
to the knowledge of the Sellers and TPGC, threatened and, to the knowledge of
the Sellers and TPGC, there is no related organizational activity by any
employees of TPGC or any of its Subsidiaries. As of the date hereof, none of
TPGC or any of the Subsidiaries has, except as set forth in Section 3.18 of the
Disclosure Schedule, received any written notice of any unfair labor practice in
connection with the Business and, to the knowledge of the Sellers and TPGC, no
such complaints are pending before the National Labor Relations Board or other
similar Governmental Entity.
(b) A true, correct and complete copy of the payroll register of
TPGC and each of the Subsidiaries as of December 23, 1999, reflecting all
remuneration paid, including any salary and bonus, to each of the employees of
TPGC and the Subsidiaries is set forth in Schedule 3.18 of the Disclosure
Schedule.
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Section 3.19. TRANSACTIONS WITH AFFILIATES. Except to the extent described
in Section 3.19 of the Disclosure Schedule, none of TPGC or any of the
Subsidiaries has been involved in any business arrangement or business
relationship or is a party to any agreement, contract, commitment or transaction
with any affiliate of TPGC or any of the Subsidiaries (other than TPGC and the
Subsidiaries) and no affiliate of TPGC or any of the Subsidiaries (other than
TPGC and the Subsidiaries) owns any property or right, tangible or intangible,
that is used in the Business.
Section 3.20. YEAR 2000. TPGC has: (i) completed a review and assessment
of all areas within the Business that could reasonably be expected to be
materially adversely affected by "Year 2000 Matters" (that is, the risk that
computer applications used by TPGC or any of the Subsidiaries may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999); (ii) developed a plan (the "Year
2000 Plan") for addressing Year 2000 Matters on a timely basis; and (iii) as of
the date of this Agreement, completed implementation of the Year 2000 Plan.
Section 3.21. CONTRACTS AND COMMITMENTS. Except as set forth in Section
3.21 of the Disclosure Schedule, neither TPGC nor any of the Subsidiaries is a
party to any contract, obligation or commitment which involves a potential
commitment or aggregate payments in excess of $50,000 on an annual basis, or
which is otherwise material and not entered into in the ordinary course of
business, or has any employment contracts other than oral contracts which are
terminable at will without penalty; stock redemption or purchase agreements;
financing agreements; or agreements with officers, directors, employees or
shareholders of TPGC or any of its Subsidiaries or Persons related to or
affiliated with any such Persons. Except as disclosed in Section 3.21 of the
Disclosure Schedule, neither TPGC nor any of the Subsidiaries is in material
default under any material contract, obligation or commitment, and, to the
knowledge of the Sellers and TPGC, there is no state of facts which upon notice
or lapse of time or both, in any such case, would constitute such a default, the
consequences of which default if asserted by the other contracting party would
be materially adverse with respect to TPGC and the Subsidiaries, taken as a
whole. Neither TPGC nor any of the Subsidiaries has entered into any government
contracts or subcontracts that remain in full force and effect. Except as set
forth in Section 3.21 of the Disclosure Schedule, there are no bonuses payable
to employees of TPGC or any of the Subsidiaries by TPGC or any of the
Subsidiaries within twelve (12) months of the date of this Agreement, whether as
a result of the consummation of the transactions contemplated by this Agreement
or otherwise.
Section 3.22 DISCLOSURE SCHEDULE. The parties acknowledge and agree that
(i) the Disclosure Schedule may include certain items and information solely for
informational purposes for the convenience of the parties hereto, (ii) the
disclosure of any matter in the Disclosure Schedule shall not be deemed to
constitute an acknowledgment by the Sellers or TPGC, as the case may be, that
the matter is material or is required to be disclosed pursuant to the provisions
of this Agreement, (iii) any fact or item disclosed in the Disclosure Schedule
and referenced by a particular section in this Agreement shall, should the
existence of the fact or item or its contents be relevant to any other section
in this Agreement, be deemed to be disclosed with respect to such other section
whether or not a specific cross-reference appears (provided that the relevance
of such fact or item shall be reasonably evident from such disclosure), (iv) the
disclosure of any fact or item in the Disclosure Schedule shall not represent an
admission by the Sellers or TPGC,
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as the case may be, that such fact or item actually constitutes noncompliance
with, or a violation of, any law, regulation or statute to which such disclosure
is applicable as such disclosure has been made for purposes of creating
exceptions to the representations and warranties made by the Sellers or TPGC, as
the case may be, to the parties specified in this Agreement, and (v) each
attachment referenced in the Disclosure Schedule shall be deemed incorporated
into and a part of such Disclosure Schedule, so long as such attachment shall
have been delivered to Buyer prior to the execution of this Agreement.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Sellers and TPGC as
follows:
Section 4.1 ORGANIZATION, STANDING AND AUTHORITY. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Buyer has all requisite corporate power and authority to
execute, deliver and perform this Agreement in accordance with its terms.
Section 4.2 AUTHORITY; NO CONSENTS OR GOVERNMENTAL AUTHORIZATIONS; NO
BREACH OF STATUTE OR CONTRACT; ENFORCEABILITY.
(a) Buyer has the full power and lawful authority to execute and
deliver this Agreement and to consummate and perform the transactions
contemplated hereby in the manner herein provided. The execution and delivery of
this Agreement by Buyer and the consummation and performance by Buyer of the
transactions contemplated hereby in the manner herein provided have been duly
and validly authorized by all necessary corporate action.
(b) Subject to obtaining the Required Consents, neither the
execution and delivery by Buyer of this Agreement nor the consummation and
performance by Buyer of the transactions contemplated hereby in the manner
herein provided (i) requires the approval, consent, authorization or order of,
or any filing, qualification or registration with or notice to, any federal,
state, local or other governmental agency or body or any other third party,
other than (A) approvals, consents, authorizations, filings or notices of a
character such that a failure to obtain, file or give them would not singly or
in the aggregate impair or affect the validity of this Agreement or prevent or
hinder the consummation of the transactions contemplated hereby, and (B)
approvals, consents, authorizations, filings or notices which have been properly
and validly obtained, made or given, or (ii) conflicts with or will result in an
uncured or unwaived breach or violation of any term or provision of, constitute
a default under or will cause the acceleration of any payments pursuant to (A)
the Certificate of Incorporation or By-laws of Buyer, (B) any indenture,
mortgage, deed of trust, lease, note or note agreement or any other agreement or
instrument to which Buyer is a party or by which Buyer or any of its assets or
properties is bound, (C) any governmental license, franchise, permit,
certificate or other authorization held by Buyer or (D) any law, judgment,
order, writ, injunction, decision, decree, award, rule or regulation of any
court, arbitrator or Governmental Entity applicable to Buyer with the effect
that the validity of this Agreement is impaired or affected or the consummation
of the transactions contemplated hereby is prevented or hindered.
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(c) This Agreement has been duly executed and delivered by Buyer
and, when executed and delivered by TPGC and each of the Sellers, assuming the
enforceability of this Agreement upon the Sellers and TPGC, will be the legal,
valid and binding obligation of Buyer, and will be enforceable against Buyer in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors' rights 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.
(d) No approval, consent or authorization is required to be obtained
in connection with a change in control of Buyer or MJD from the FCC or any
Governmental Entity located within any of the States of Alabama, Florida or
Georgia.
Section 4.3 BROKER'S OR FINDER'S FEES. No agent, broker, investment
banker, Person or firm acting on behalf of Buyer or under its authority is or
will be entitled, directly or indirectly, to collect from or otherwise hold the
Sellers or TPGC liable for any broker's or finder's fee or any other commission
or similar fee in connection with any of the transactions contemplated herein.
Section 4.4 PURCHASE FOR INVESTMENT. Buyer will be purchasing the Shares
for investment purposes only and not with a view to the resale or distribution
thereof in whole or in part, and agrees that it will not transfer, sell or
dispose of any of the Shares in any manner that will violate the Securities Act
or any of the rules and regulations promulgated thereunder. Buyer further
understands that the Shares are not registered or qualified for sale under any
Federal or state securities laws or regulations and will not be readily
marketable. Buyer acknowledges that no offering statement or prospectus has been
issued or delivered and that it has made its own investigation and independent
analysis of the transactions provided for herein based upon information
furnished to it by the Sellers and TPGC.
Section 4.5 CAPITAL RESOURCES. Buyer has cash or cash equivalents
currently available to it in the amount sufficient (a) to pay in full in cash at
Closing the Closing Cash Payments; (b) to make any other payments Buyer is
required to make hereunder including, without limitation, all fees and expenses
of Buyer associated with the transactions contemplated hereby; and (c) to make
any other payments necessary to consummate the transactions contemplated hereby
(all such amounts, the "Financing"). Following the consummation of the
transactions contemplated hereby, Buyer will not be insolvent, will be able to
pay its debts and liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured, and will not have
unreasonably small capital with which to conduct its business.
ARTICLE 5. CERTAIN AGREEMENTS
Section 5.1 CONDUCT OF THE BUSINESS. From the date hereof until the
Closing Date, except as otherwise contemplated by this Agreement or as disclosed
in Section 5.1 of the Disclosure Schedule, the Sellers and TPGC shall cause TPGC
and each of the Subsidiaries to (x)
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conduct the Business in the ordinary course in a manner generally consistent
with past practice and (y) make capital expenditures sufficient to support
normal maintenance of the Business; provided, however, that nothing in this
Section 5.1 shall either require TPGC or any Subsidiary to incur capital
expenditures beyond the normal maintenance of the Business or limit or affect
the payment by TPGC or any of the Subsidiaries of bonuses, fees or other
payments to their respective stockholders, employees, officers or consultants;
PROVIDED, HOWEVER, that such bonuses, fees or other payments not payable in the
ordinary course in a manner generally consistent with past practice shall be
considered Adjustment Liabilities to the extent not already considered therein,
and TPGC shall consult with Buyer prior to the granting or payment of such
bonuses, fees or other payments, except that this proviso shall not apply to any
bonuses, fees or other payments disclosed in Section 5.1 of the Disclosure
Schedule which shall be paid by TPGC in accordance with their terms and
conditions. Without limiting the generality of the foregoing, except as
otherwise contemplated by this Agreement, from the date hereof until the Closing
Date, without the prior written consent of Buyer (which consent shall not be
unreasonably withheld), the Sellers and TPGC will not permit TPGC or any of the
Subsidiaries to:
(a) issue, deliver, sell, dispose of, pledge or otherwise encumber,
or authorize or propose the issuance, sale, disposition or pledge or other
encumbrance of (x) any additional shares of their capital stock of any class, or
any securities or rights convertible into, exchangeable for, or evidencing the
right to subscribe for any shares of their capital stock or any rights,
warrants, options, calls, commitments or any other agreements of any character
to purchase or acquire any shares of their capital stock or any securities or
rights convertible into, exchangeable for, or evidencing the right to subscribe
for, any shares of their capital stock except upon exercise of the options
disclosed in Section 3.4 of the Disclosure Schedule, or (y) any other securities
in respect of, in lieu of, or in substitution for, shares outstanding on the
date hereof;
(b) redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of their outstanding securities;
(c) split, combine, subdivide or reclassify any shares of their
capital stock;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of TPGC or any of the Subsidiaries;
(e) make any acquisition by means of merger, consolidation or
otherwise;
(f) adopt any amendments to their respective Certificates of
Incorporation or By-Laws;
(g) engage in the conduct of any business other than
telecommunications and related businesses including, without limitation, the
long distance telephone and cable television businesses;
(h) enter into any agreement providing for acceleration of payment
or performance or other consequence as a result of a change of control of TPGC
or any of the Subsidiaries;
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(i) submit or file with, except as otherwise contemplated in this
Agreement, or otherwise voluntarily participate as a party to any stipulation,
pleading, filing or other proceeding with the FCC, FPSC, GPSC, APSC or any other
regulatory authority with jurisdiction over TPGC or the Subsidiaries where such
stipulation, pleading, filing or other proceeding could reasonably be expected
to have a Material Adverse Effect, or fail to notify Buyer promptly of any
involuntary participation in any of the foregoing, or authorize or announce an
intention to do any of the foregoing, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing;
(j) incur any liabilities, other than liabilities incurred in the
ordinary course of business consistent with past practice, or discharge or
satisfy any Lien, or pay any liabilities, other than in the ordinary course of
business consistent with past practice and as contemplated hereby, or fail to
pay or discharge when due any liabilities of which the failure to pay or
discharge has caused or will cause any material damage or risk of material loss
to it or its Assets or properties;
(k) sell, assign or transfer any of its material Assets except in
the ordinary course of business consistent with past practice;
(l) except pursuant to existing credit facilities, create, incur,
assume or guarantee any Indebtedness for Borrowed Money, or mortgage, pledge or
subject to any Lien (other than Permitted Liens and as disclosed on Section 3.14
of the Disclosure Schedule), any of its Assets;
(m) make or suffer any amendment or termination (other than by its
terms) of any material agreement, contract, commitment, lease or plan to which
it is a party or by which it is bound, or cancel, modify or waive any material
debts or claims held by it, other than in the ordinary course of business
consistent with past practice;
(n) change any of the material accounting principles followed by it
or the methods of applying such principles;
(o) except as disclosed in Section 5.1 of the Disclosure Schedule,
make or promise any material increase in the salary or other compensation
payable or to become payable to any executive officer or other employee of TPGC
or any of the Subsidiaries other than in the ordinary course of business or as
contemplated under any Benefit Plan or employment arrangement currently in
effect; or
(p) enter into an agreement to do any of the things described in the
preceding clauses (a) through (o).
Section 5.2 ACCESS TO INFORMATION.
(a) Subject to the restrictions contained in the Confidentiality
Agreement, the Sellers and TPGC will give Buyer, its counsel, financial
advisors, auditors and other authorized representatives reasonable access during
normal business hours at Buyer's expense to the offices, properties, books and
records of TPGC and each of the Subsidiaries and will instruct the employees,
counsel and financial advisors of the Sellers to cooperate with Buyer in its
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investigation of TPGC and the Subsidiaries; provided, however, that any such
investigation shall be conducted on commercially reasonable prior notice
submitted to James Faison, Vice President/Controller of TPGC, and in such manner
as not to interfere unreasonably with the conduct of the business of TPGC or the
Subsidiaries. The Sellers and TPGC agree to reasonably cooperate with Buyer and
its parent, MJD Communications, Inc. ("MJD"), and give MJD and its auditors and
representatives access to TPGC's representatives, employees and auditors as
Buyer may reasonably request pursuant to reasonable prior notice to TPGC so that
MJD may obtain the necessary financial data to permit MJD to comply with its
reporting obligations under the federal securities laws; PROVIDED, HOWEVER, that
such requests and access shall not interfere unreasonably with the conduct of
the business of TPGC or the Subsidiaries. All costs, expenses and fees incurred
in connection with compliance by any party with the obligations set forth in the
preceding sentence shall be borne by Buyer. Except as specifically provided in
Sections 3.9 and 3.10 with respect to the financial statements delivered in
accordance with Section 3.9, the Sellers and TPGC make no representations or
warranties with respect to any financial data obtained by Buyer and MJD pursuant
to this Section 5.2, and Buyer hereby indemnifies and holds harmless TPGC and
the Sellers and any Person that controls either of them within the meaning of
Section 15 of the Securities Act of 1933, as amended, and Section 20 of the
Securities Exchange Act of 1934, as amended, from and against any and all
liabilities, losses, damages, costs and expenses arising from or in connection
with the inclusion of any such financial data in any report or other filing
filed or made by Buyer or MJD under the federal securities laws (collectively,
"Securities Losses"). Notwithstanding the foregoing, nothing contained in this
Section 5.2 shall limit or restrict the Sellers' obligation to indemnify and
hold harmless Buyer pursuant to Article 7 hereof for the inaccuracy of the
representations and breach of the warranties contained in Sections 3.9 and 3.10;
provided, however, that notwithstanding anything to the contrary contained
herein, the Sellers shall not be obligated to indemnify and hold harmless Buyer
pursuant to Section 7.1 for any Securities Losses.
(b) In addition, the Sellers and TPGC agree to provide Buyer, during
the period from the date hereof until the Closing Date, with copies of the
monthly financial statements and other financial data prepared by TPGC in the
ordinary course of business within thirty (30) days after the end of each fiscal
month during such period.
Section 5.3 EFFORTS; FURTHER ASSURANCES; PERMITS.
(a) Subject to the terms and conditions of this Agreement, each
party will use its commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement, including, without limitation, preparing and
making any filings or other submissions, or providing any information required
to be made under applicable law, rules or regulations. Each of the parties shall
furnish to the other parties such necessary information and reasonable
assistance as such other party may request in connection with the foregoing.
(b) Upon Buyer's request, and at Buyer's expense, the Sellers and
TPGC will use, and will cause TPGC and the Subsidiaries to use, commercially
reasonable efforts to assist Buyer in obtaining any permits, licenses,
certificates or other authorizations necessary for Buyer's operation of TPGC and
the Subsidiaries consistent with past practice after the Closing
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Date. Sellers, TPGC and each Subsidiary shall use commercially reasonable
efforts to maintain in full, force and effect all material permits, licenses and
authorizations, timely file for any renewal of such permits, licenses and
authorizations, and timely make all material reports or other filings required
in connection with such permits, licenses and authorizations.
(c) In the event that at any time, any order, decree or injunction
shall be entered which prevents or delays the consummation of any of the
transactions contemplated by this Agreement, each party shall promptly use its
commercially reasonable efforts to cause such order, decree or injunction to be
reversed, vacated or modified in order to permit such transactions to proceed as
expeditiously as possible.
(d) After the Closing Date, the Sellers and TPGC will take such
actions, and execute and deliver to Buyer such further assignments or other
transfer documents as, in the reasonable opinion of counsel for Buyer, may be
necessary to evidence the transfer of the Shares to Buyer pursuant to this
Agreement; provided, however, that Buyer shall be responsible for all fees,
taxes and other costs payable with respect to such further sale, assignment or
other transfer documents.
Section 5.4 BOOKS AND RECORDS. After the Closing Date, Buyer shall retain
the Books and Records for three years (or longer as otherwise required by law)
and upon reasonable notice and subject to the Confidentiality Agreement, the
parties will give to the representatives, employees, counsel and accountants of
the other, access, during normal business hours, to the Books and Records
relating to the Business, and will permit such persons to examine and copy such
records, in each case to the extent reasonably requested by the other party in
connection with tax and financial reporting matters, audits, legal proceedings,
governmental investigations and other business purposes (including such
financial information and any receipts evidencing payment of taxes as may be
requested by Sellers to substantiate any claim for tax credits or refunds);
provided, however, that nothing herein will obligate any party to take actions
that would unreasonably disrupt the normal course of its business or violate the
terms of any contract to which it is a party or to which it or any of its Assets
is subject. The Sellers and Buyer will cooperate with each other in the conduct
of any tax audit or similar proceedings involving or otherwise relating to the
Business (or the income therefrom or assets thereof) with respect to any Taxes
and each will execute and deliver such powers of attorney and other documents as
are necessary to carry out the intent of this Section 5.4.
Section 5.5 FCC CONSENTS. As promptly as practicable after the execution
of this Agreement, but in no event later than ten business days from the date
hereof, Buyer shall file all appropriate applications and requests with the FCC
seeking, and shall use its best efforts to obtain, (i) the FCC's consent to the
transfer of control of the licensed Subsidiaries to Buyer under the FCC Licenses
(as listed in Section 3.17(b) of the Disclosure Schedule), (ii) any necessary
FCC waivers and (iii) effectiveness of any necessary tariffs for interstate and
international services (all such consents, waivers and effectiveness are
collectively referred to as the "FCC Consents"). In the event that the FCC
requires Buyer to assume or accept any special terms, conditions or restrictions
that do not materially and adversely affect Buyer or the Business, taken as a
whole, in order to obtain any FCC Consents, Buyer agrees to accept such special
terms, conditions or restrictions in order to expedite the approval process.
Buyer agrees to pay all fees required in connection with obtaining the FCC
Consents.
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Section 5.6 NON-FCC CONSENTS. As promptly as practicable after the
execution of this Agreement, but in no event later than ten business days from
the date hereof, Buyer shall file all appropriate applications and requests with
the FPSC, APSC and GPSC seeking, and shall use its best efforts to obtain, (i)
the consents of such commissions, as necessary, to the transfer of control of
the licensed Subsidiaries to Buyer under the Non-FCC Authorizations (as listed
in Section 3.17(c) of the Disclosure Schedule), (ii) any necessary waivers from
such commissions and (iii) effectiveness of any necessary tariffs for intrastate
services (all such consents, waivers and effectiveness are collectively referred
to as the "Non-FCC Consents"). In the event that the FPSC, APSC or GPSC requires
Buyer to assume or accept any special terms, conditions or restrictions that do
not materially and adversely affect Buyer or the Business, taken as a whole, in
order to obtain any Non-FCC Consents, Buyer agrees to accept such special terms,
conditions or restrictions in order to expedite the approval process. Buyer
agrees to pay all fees required in connection with obtaining such consents.
Section 5.7 HSR ACT REVIEW.
(a) Within ten business days after the date of this Agreement, the
parties will make such filings as may be required by the HSR Act with respect to
the transactions contemplated by this Agreement. Thereafter, the parties will
file as promptly as practicable all reports or other documents required or
requested by the U.S. Federal Trade Commission or the U.S. Department of Justice
pursuant to the HSR Act or otherwise and will comply promptly with any
reasonable requests by the U.S. Federal Trade Commission or the U.S. Department
of Justice for additional information concerning such transactions, so that the
waiting period specified in the HSR Act will expire or the transaction will be
granted an early termination by the U.S. Federal Trade Commission and the U.S.
Department of Justice as soon as reasonably possible after the execution and
delivery of this Agreement. Buyer agrees that if it has entered or shall enter
into any contract(s) providing for Buyer's acquisition of businesses (through
transfer of assets or ownership interests) deriving revenues in SIC Code 4812 or
4813 in any of the counties in which the Business is conducted, then any
premerger notifications that are required to be filed with respect to such
acquisitions shall be filed only after the waiting period applicable to the
present transaction shall have expired or been terminated in accordance with the
provisions of the HSR Act. Without limiting the foregoing, the Sellers and Buyer
agree to use their commercially reasonable efforts to cooperate and oppose any
preliminary injunction sought by any Governmental Entity preventing the
consummation of the transactions contemplated by this Agreement. In the event
that the U.S. Federal Trade Commission or the U.S. Department of Justice
requires Buyer to assume or accept any special terms, conditions or restrictions
that do not materially and adversely affect the Business, taken as a whole, in
order to obtain any consents required pursuant to the HSR Act, Buyer agrees to
accept such special terms, conditions or restrictions in order to expedite the
approval process. Buyer agrees to pay all application fees required in
connection with any filings under the HSR Act.
(b) The Sellers and Buyer shall cause their respective counsel to
furnish each other such necessary information and reasonable assistance as the
other may reasonably request in connection with its preparation of necessary
filings or submissions under the provisions of the HSR Act. The Sellers and
Buyer will cause their respective counsel to supply to each other copies of all
correspondence, filings or written communications by such party or its
affiliates with any Governmental Entity or staff members thereof, with respect
to the transactions
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contemplated by this Agreement and any related or contemplated transactions,
except for documents filed pursuant to Items 4(b) and 4(c) of the
Hart-Scott-Rodino Notification and Report Form or communications regarding the
same documents or information submitted in response to any request for
additional information or documents pursuant to the HSR Act which reveal the
Sellers' or Buyer's negotiating objectives or strategies or purchase price
expectations; PROVIDED, HOWEVER, that the foregoing exception shall not limit
Buyer's right to reasonable access to information pursuant to Section 5.2
hereof.
Section 5.8 TAX MATTERS.
(a) TAX RETURNS. The Sellers shall prepare or cause to be prepared
and shall duly and timely file or cause to be filed all Tax Returns required to
be filed (with regard to extensions) by TPGC or the Subsidiaries on or before
the Closing Date and shall pay or cause to be paid all Taxes owed for such
periods. Such Tax Returns shall be prepared in accordance with the past custom
and practice of TPGC or any Subsidiary, as the case may be. In preparing such
Tax Returns, Sellers shall consult with Buyer in good faith and shall provide
Buyer with drafts of such Tax Returns (together with the relevant back-up
information) for review at least ten days prior to filing. Buyer shall file or
cause to be filed all Tax Returns of TPGC and the Subsidiaries that are required
to be filed after the Closing Date, including Tax Returns that relate to tax
periods ending on or after the Closing Date and shall pay or cause to be paid
all Taxes owed for such periods.
(b) COOPERATION ON TAX MATTERS.
(i) The Sellers and Buyer shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the filing of
Tax Returns pursuant to this Section 5.8 and any audit, litigation, or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation, or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
(ii) The Sellers and Buyer further agree, upon request, to use
commercially reasonable efforts to obtain any certificate or other document from
any Governmental Entity or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including Taxes with respect
to the transactions contemplated hereby).
(iii) The Sellers and Buyer agree that if any of them receives
any notice of an audit or examination from any Governmental Entity with respect
to Taxes of TPGC or any Subsidiary for any taxable period or portion thereof
ending on or prior to the Closing Date, then the recipient of such notice shall,
within three (3) days of the receipt thereof, notify and provide copies of such
notice to the other party, as the case may be, in accordance with the notice
provisions of Section 9.5.
(c) From and after the date of this Agreement, the Sellers, TPGC and
the Subsidiaries shall not without the prior written consent of Buyer (which
consent shall not be
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unreasonably withheld) make, or cause or permit to be made, any Tax election
that would adversely affect Buyer in any material respect.
(d) The Sellers and Buyer agree to treat all payments made either
to or for the benefit of the other (including any payments to TPGC or any
Subsidiary) under Article 7 and for any misrepresentations or breach of
warranties or covenants as adjustments to the Purchase Price or as capital
contributions for Tax purposes and that such treatment shall govern for
purposes hereof.
Section 5.9 CONFIDENTIALITY OF INFORMATION. All information delivered to
Buyer hereunder, including information obtained as a result of investigations
made pursuant to Section 5.2, is subject to the terms of the Confidentiality
Agreement, which shall be deemed to remain in full force and effect
notwithstanding the execution and delivery of this Agreement. Without limiting
the foregoing, Buyer agrees, except as required otherwise by applicable law, to
keep confidential, and not use for any purpose unrelated to the transactions
contemplated hereby, any material non-public information regarding TPGC's or the
Subsidiaries' operations and businesses (unless readily ascertainable from
public or published information or trade sources) that was obtained in
connection with the investigation, negotiation or consummation of the
transactions contemplated hereby. In the event of the termination of this
Agreement, Buyer shall return to the Sellers (without retaining copies thereof)
any documents or other information obtained from TPGC, any Seller, or any
representative of TPGC or any Seller in connection herewith and shall cause its
counsel, accountants or other advisers similarly to return such documents and to
keep such information confidential and to destroy all analyses, studies or other
documents prepared in connection with its evaluation of TPGC and the
Subsidiaries. On the request of TPGC, Buyer shall provide written certification
to TPGC certifying such destruction.
Section 5.10. EFFECT OF DUE DILIGENCE AND RELATED MATTERS. Buyer
represents that it is a sophisticated entity that was advised by knowledgeable
counsel and financial advisors and, to the extent it deemed necessary, other
advisors in connection with this Agreement and that it has conducted its own
independent review, evaluation and inspection of TPGC and the Subsidiaries.
Accordingly, Buyer covenants and agrees that (i) except for the representations
and warranties set forth in this Agreement, the Disclosure Schedule or in a
certificate delivered pursuant hereto by or on behalf of the Sellers, Buyer has
not relied and will not rely upon, and Sellers and TPGC shall not be liable for
or bound in any manner by, any express or implied verbal or written information,
warranties, promises, statements, inducements, representations or opinions
furnished to or discovered by Buyer or its representatives, including without
limitation any financial statements or data, (ii) there are no representations
or warranties by or on behalf of the Sellers, their affiliates or their
representatives except for those expressly set forth in this Agreement or in
another written agreement entered into with Sellers in connection with this
Agreement, and (iii) to the fullest extent permitted by law, Buyer's rights and
obligations with respect to all of the foregoing matters will be solely as set
forth in this Agreement or in such other written agreements.
Section 5.11. TEXAS PACIFIC GROUP AND TPG NAMES. The parties agree that
the Sellers shall retain the right to use the names "Texas Pacific Group," "TPG"
and any and all derivations thereof, and, after the Closing, Buyer shall, and
shall cause the Subsidiaries to, remove or delete the names "Texas Pacific
Group," "TPG" and all derivations thereof from any Assets on which
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any such name or derivation appears as soon as reasonably practicable, but in
any event, by the 60th day following Closing. Until such removal or deletion in
accordance with the preceding sentence, in order to facilitate the transition of
ownership of the Assets pursuant to the transactions contemplated by this
Agreement, the names "Texas Pacific Group," "TPG" and all derivations thereof
may remain on the tangible assets included in the Assets. On the Closing Date,
immediately following the Closing, Buyer shall cause TPGC and TPGC Finance
Corporation to change their respective corporate names to names which do not
include the names "Texas Pacific Group," "TPG" or any derivations thereof by
filing appropriate amendments to their respective organizational documents with
the appropriate Governmental Entities. From and after the 60th day following the
Closing, the Sellers shall retain the sole and exclusive right to use the names
"Texas Pacific Group," "TPG" and any and all derivations thereof.
Notwithstanding the foregoing, after the Closing, Buyer shall not, and shall
cause the Subsidiaries not to, (i) use any stationery containing the names
"Texas Pacific Group," "TPG" or any derivation thereof or (ii) make any public
announcement or communication using the names "Texas Pacific Group," "TPG" or
any derivation thereof.
Section 5.12. ENVIRONMENTAL ISSUES. Buyer and the Sellers acknowledge that
Buyer has obtained certain environmental audits and reports with respect to
TPGC's facility at 227 South Jefferson Street, Perry, Florida (such
environmental audits and reports obtained by Buyer, and copies of which are
provided to Sellers, in each case, prior to Closing, the "Environmental
Reports"). Buyer shall pay the costs and expenses of up to $1 million
($1,000,000) of any remediation identified in, and required by, the
Environmental Reports, and Buyer, on the one hand, and the Sellers, on the other
hand, shall each pay one-half of the costs and expenses in excess of $1 million
($1,000,000) of any remediation identified in, and required by, the
Environmental Reports.
Section 5.13 PAYMENT OF DIVIDENDS; INTER-LATA SUBSIDY.
(a) In the event that following the Closing, TPGC or any of the
Subsidiaries should receive dividends, patronage refunds or similar payments
from CoBank ACB or the Rural Telephone Bank, Buyer shall cause to be paid to the
Sellers a prorated amount thereof based on the period for which such payments
are attributable and the proportional ownership of TPGC by the Sellers and Buyer
during such period.
(b) Buyer, the Sellers and TPGC hereby agree that if the proceeding
identified in item D. of Section 3.15 of the Disclosure Schedule (the "Florida
Subsidy Dispute") is resolved prior to June 30, 2000 and the Closing has
occurred on or prior to such date, then Buyer shall cause TPGC to pay, and TPGC
shall pay, a prorated amount of the proceeds received as a result of such
resolution to the Sellers based on the period for which the subsidies (and any
interest, income or earnings in respect thereof) constituting such amount are
attributable and the proportional ownership of TPGC by the Sellers and Buyer
during such period. Notwithstanding anything in this Agreement to the contrary,
Buyer shall consent to any settlement, waiver or release related to resolution
of the Florida Subsidy Dispute as long as any such settlement, waiver or release
could not reasonably be expected to have a Material Adverse Effect after the
Closing.
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Section 5.14. FINANCING. Buyer shall use commercially reasonable efforts
to maintain the Financing or, upon the written consent of the Sellers, to obtain
alternative financing sufficient for Buyer to consummate the transactions
contemplated by this Agreement.
ARTICLE 6. CONDITIONS TO CLOSING
Section 6.1 CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
purchase the Shares shall be subject to the satisfaction or waiver by Buyer of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND TPGC TO BE
TRUE; COMPLIANCE WITH COVENANTS. The Sellers and TPGC shall have complied in all
material respects with their covenants to be performed in whole or in part prior
to the Closing, and the representations and warranties of the Sellers and TPGC
in Article 3 shall be true and correct as of the Closing (without regard to the
materiality or Material Adverse Effect qualifiers set forth therein), except for
(i) such representations or warranties that are made expressly as of an earlier
date and, (ii) to the extent that any breach of such representations and
warranties has not, individually or in the aggregate, had a Material Adverse
Effect. The Sellers and TPGC each shall have delivered to Buyer certificates,
dated the Closing Date, to the effect that the conditions set forth in this
Section 6.1(a) have been satisfied as of such date.
(b) NO INJUNCTION OR OTHER GOVERNMENTAL ACTION. No preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or by any governmental or regulatory body or any statute, rule,
regulation or executive order promulgated or enacted by any Governmental Entity
after the date of this Agreement which prohibits the consummation of the
transactions contemplated hereby shall be in effect; and (ii) no Governmental
Entity shall have instituted any suit, action, or legal or administrative
proceeding to restrain, enjoin or otherwise question the validity or legality of
the transactions contemplated by this Agreement and no order or decree so
restraining or enjoining such transactions shall be in effect.
(c) STATUTORY REQUIREMENTS; REQUIRED CONSENTS. (i) All required
waiting periods under the HSR Act shall have expired or been terminated; and
(ii) all FCC Consents and Non-FCC Consents necessary to effect the sale of the
Shares to Buyer shall have occurred or been obtained.
(d) TERMINATION OF CERTAIN RIGHTS. Upon receipt of the amounts
directed by the Sellers pursuant to Section 2.2(a), (i) the Stock Option Holders
shall have delivered releases of their rights under the Lewis Agreement and the
Di Pauli Agreement, as applicable, in form and substance reasonably satisfactory
to Buyer, and (ii) the Plan Participants shall have delivered releases of their
rights under the Participation Plan in form and substance reasonably
satisfactory to Buyer, in either case, without liability to Buyer, TPGC or any
Subsidiary.
(e) DELIVERIES. Each of the deliveries required under Section 2.5(b)
shall have been made to the reasonable satisfaction of Buyer.
Section 6.2 CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligation
of the Sellers to sell the Shares shall be subject to the satisfaction or waiver
by the Sellers of the following conditions:
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(a) REPRESENTATIONS AND WARRANTIES OF BUYER TO BE TRUE; COMPLIANCE
WITH COVENANTS. Buyer shall have complied in all material respects with its
covenants to be performed in whole or in part prior to the Closing, and the
representations and warranties of Buyer in Article 4 shall be true and correct
in all material respects as of the Closing, except for representations or
warranties made expressly as of some other date, which shall be true and correct
in all material respects as of such other date. Buyer shall have delivered to
the Sellers a certificate, dated the Closing Date, to the effect that the
conditions set forth in this Section 6.2(a) have been satisfied as of such date.
(b) NO INJUNCTION OR OTHER GOVERNMENTAL ACTION. (i) No preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or by any governmental or regulatory body nor any statute, rule,
regulation or executive order promulgated or enacted by any Governmental Entity
after the date of this Agreement which prohibits the consummation of the
transactions contemplated hereby shall be in effect, and (ii) no Governmental
Entity shall have instituted any suit, action, or legal or administrative
proceeding to restrain, enjoin or otherwise question the validity or legality of
the transactions contemplated by this Agreement and no order or decree so
restraining or enjoining such transactions shall be in effect.
(c) STATUTORY REQUIREMENTS; REQUIRED CONSENTS. (i) All required
waiting periods under the HSR Act shall have expired or been terminated; and
(ii) all FCC Consents and Non-FCC Consents necessary to effect the sale of the
Shares to Buyer shall have occurred or been obtained.
(d) DELIVERIES. Each of the deliveries required under Section 2.5(a)
shall have been made to the reasonable satisfaction of the Sellers.
ARTICLE 7. INDEMNIFICATION
Section 7.1 INDEMNIFICATION BY THE SELLERS.
(a) Subject to the limitations set forth in this Article 7,
including without limitation Section 7.5, the Sellers shall indemnify, defend
and hold Buyer harmless from and against any and all liabilities, losses,
damages, Taxes, costs and expenses (collectively, "Indemnifiable Losses")
asserted against, imposed on, or incurred or suffered by Buyer as a result of
any of the following:
(i) the inaccuracy (without regard to materiality or Material
Adverse Effect qualifiers set forth therein) of any representation or the breach
of any warranty set forth in Article 3 or in any agreement or certificate
executed and delivered by the Sellers pursuant to this Agreement;
(ii) the non-fulfillment of any unwaived covenant or agreement
on the part of the Sellers set forth in this Agreement or in any agreement or
certificate executed and delivered pursuant to this Agreement; and
(iii) any and all actions, suits, claims, proceedings,
investigations, audits, examinations, demands, assessments, fines, judgments,
settlements, interest, penalties,
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costs, remedial actions and other expenses (including without limitation
reasonable audit, engineering, consulting and legal fees) pertaining to or
arising out of any of the foregoing.
(b) The obligations of the Sellers hereunder shall be several,
in proportion to their ownership of the Shares on the date hereof as shown in
Section 3.4 of the Disclosure Schedule, except that prior to the Closing, the
Sellers shall have no liability hereunder whatsoever and TPGC shall have
exclusive liability for all obligations of the Sellers and TPGC hereunder.
Section 7.2 INDEMNIFICATION BY BUYER.
(a) Subject to the limitations set forth in this Article 7,
including without limitation Section 7.5, Buyer shall indemnify, defend and hold
the Sellers and TPGC harmless from and against any and all Indemnifiable Losses
asserted against, imposed on, or incurred or suffered by the Sellers as a result
of any of the following:
(i) the inaccuracy (without regard to materiality or Material
Adverse Effect qualifiers set forth therein) of any representation or the breach
of any warranty set forth in Article 4 or in any agreement or certificate
executed and delivered by Buyer pursuant to this Agreement;
(ii) the nonfulfillment of any unwaived covenant or agreement
on the part of Buyer set forth in this Agreement or in any agreement or
certificate executed and delivered pursuant to this Agreement; and (iii) any and
all actions, suits, claims, proceedings, investigations, audits, examinations,
demands, assessments, fines, judgments, settlements, interest, penalties, costs,
remedial actions and other expenses (including without limitation reasonable
audit, engineering, consulting and legal fees) pertaining to or arising out of
any of the foregoing.
(b) Buyer agrees to pay and to indemnify, reimburse and hold
harmless the Sellers, and their successors from and against (i) any and all
liabilities included as Adjustment Liabilities for purposes of determining
Working Capital and (ii) any and all Taxes of TPGC and the Subsidiaries payable
with respect to, and any Taxes reflected on Tax Returns required to be filed by
TPGC and the Subsidiaries with respect to, any taxable period of TPGC and the
Subsidiaries beginning as of the Effective Time, whether such Taxes are imposed
directly on TPGC and the Subsidiaries or as a result of including TPGC and the
Subsidiaries in consolidated or combined returns filed with respect to Buyer, as
a member of a consolidated group.
Section 7.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties hereto shall survive the Closing
and shall expire twelve (12) months after the Closing Date, other than with
respect to Section 3.6 which shall survive until the 30th day following the
expiration of the applicable statute of limitations and other than with respect
to Section 3.3. No action or proceeding may be brought with respect to any of
the representations and warranties unless written notice thereof, setting forth
in reasonable detail the nature of the claimed misrepresentation or breach of
warranty and otherwise complying with Section 7.4, is delivered to the party
from whom indemnification is sought prior to the expiration of such twelve-month
period.
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Section 7.4 METHOD OF ASSERTING CLAIMS. The party seeking indemnification
(the "Indemnitee") from the party from whom indemnification is claimed (the
"Indemnitor") shall follow the following conditions and procedures:
(a) In the event that any claim or demand for which an Indemnitee
may claim indemnity is asserted against or sought to be collected from an
Indemnitee by a third party, the Indemnitee shall notify the Indemnitor within
20 days following the receipt by the Indemnitee of such claim or demand,
specifying the nature of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim and demand) (the "Claim Notice").
Failure of an Indemnitee to so notify an Indemnitor within such 20 day period
shall not relieve an Indemnitor of its obligation to indemnify the Indemnitee
for such claim or demand unless the delay in giving notice of such claim or
demand in fact materially prejudices the defense of such claim or demand. Any
party hereto against whom a claim or demand is asserted by a third party shall,
without prejudice to any right of indemnification hereunder, appropriately
respond to such claim or demand (whether by answer, denial, request for
extension of time or other action) to such claim or demand within any applicable
time period, so as to preserve any rights or remedies it or any other party may
have against the Person making such claim or demand.
(b) An Indemnitor shall have 30 days from the date on which the
Claim Notice is duly given (the "Notice Period") to notify an Indemnitee (i)
whether or not it disputes the liability of the Indemnitor to the Indemnitee
hereunder with respect to such claim or demand and (ii) whether or not the
Indemnitor desires to defend the Indemnitee against such claim or demand. In the
event an Indemnitor notifies an Indemnitee within the Notice Period that it
desires to defend the Indemnitee against such a claim or demand from the
Indemnitee, then except as hereinafter provided the Indemnitor shall defend, at
its sole cost and expense, the Indemnitee by appropriate proceedings, and shall
control the conduct of such defense; provided, however, that the Indemnitor
shall not, without the prior written consent of the Indemnitee, consent to the
entry of any judgment against the Indemnitee or enter into any settlement or
compromise which does not include, as an unconditional term thereof, the giving
by the claimant or plaintiff to the Indemnitee of a release from all liability
in respect of such claim or litigation. If the Indemnitee desires to participate
in, but not control, any such defense or settlement, it may do so at its sole
cost and expense.
(c) Prior to an Indemnitor's settling any claim or demand the
defense of which it has assumed control, the Indemnitor shall obtain the
Indemnitee's approval, confirmed in writing in accordance with the notice
provisions hereof, which approval shall not be unreasonably withheld or delayed.
If an Indemnitee notifies an Indemnitor of its disapproval of such settlement,
the Indemnitee shall thereupon become liable, from and after the date of its
disapproval, for the amount of any award, judgment, costs or expenses (including
attorney fees) in excess of the proposed settlement amount and shall have the
right to elect to control the defense of such claim at its sole cost and
expense.
(d) In the event an Indemnitee should have a claim against an
Indemnitor hereunder which does not involve a claim or demand being asserted
against or sought to be collected from the Indemnitee (or TPGC or the
Subsidiaries, if Buyer is the Indemnitee) by a third party, the Indemnitee shall
promptly send a Claim Notice with respect to such claim to the
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Indemnitor. If the Indemnitor does not notify the Indemnitee within the Notice
Period that it disputes such claim, the Indemnitor shall be liable for the
amount of any resulting Indemnifiable Losses.
Section 7.5 LIMITATIONS ON INDEMNIFICATION.
(a) The amount of any claim for indemnification of Indemnifiable
Losses by an Indemnitee shall be reduced by any Tax, insurance or other benefits
that such Indemnitee or its affiliates receive in respect of or as a result of
such claim or the facts or circumstances relating thereto. If any Indemnifiable
Losses for which indemnification is provided hereunder are subsequently reduced
by any tax benefit, insurance payment or other recovery from a third party, the
amount of such reduction shall be remitted immediately to the Indemnitor.
(b) Notwithstanding any other provision of this Agreement or of any
applicable law, no Indemnitee will be entitled to make a claim against an
Indemnifying Party under this Article 7 until the aggregate amount of claims
that may be asserted for Indemnifiable Losses exceeds, and only to the extent
which such Indemnifiable Losses exceed, $1,000,000.
(c) Notwithstanding any other provision of this Agreement or of any
applicable law, the indemnification obligations of the Sellers and TPGC under
this Agreement shall not exceed, in the aggregate, an amount equal to three
percent of the Purchase Price, except that the indemnification obligations that
arise as a result of a breach of Section 3.3, 3.6 or 3.16 may exceed three
percent but shall not exceed, in the aggregate together with all other
indemnification obligations of the Sellers, an amount equal to one hundred
percent of the Purchase Price less the $1,000,000 deductible set forth in
Section 7.5(b).
(d) No Indemnitor shall be liable to or obligated to indemnify any
Indemnitee hereunder for any consequential, special, multiple, punitive or
exemplary damages, including but not limited to damages arising from loss or
interruption of business, profits, business opportunities or goodwill, loss of
use of facilities, loss of capital, claims of customers, or any cost or expense
related thereto, except to the extent such damages have been recovered by a
third Person and are the subject of a third party claim for which
indemnification is available under the express terms of this Section 7.
(e) The Sellers, TPGC and Buyer shall cooperate with each other with
respect to resolving any claim or liability with respect to which one party is
obligated to indemnify the other party hereunder, including by making
commercially reasonable efforts to mitigate or resolve any such claim or
liability.
(f) (i) Anything in this Agreement or applicable law to the contrary
notwithstanding, other than claims pursuant to this Article 7 and other than
claims based on fraud, and subject to the limitations set forth herein, after
the Closing, none of the Sellers, their respective affiliates or any of their
respective officers, partners, employees or agents shall have any obligation or
liability to Buyer under this Article 7 or otherwise, and Buyer will not have
any claim or recourse against the Sellers, their respective affiliates or any of
their respective officers, partners, employees or agents as a result of the
breach of any representation, warranty, covenant or agreement of the Sellers
contained herein or otherwise arising out of or in connection with the
transactions
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<PAGE>
contemplated by this Agreement and the provisions of this Article 7 shall be the
sole and exclusive remedy for any such claim by Buyer for any such matters,
whether such claims are framed in contract, tort or otherwise.
(ii) Anything in this Agreement or applicable law to the
contrary notwithstanding, other than claims pursuant to this Article 7 and other
than claims based on fraud, and subject to the limitations set forth herein,
after the Closing, none of Buyer, its affiliates or any of its officers,
directors, shareholders, employees or agents shall have any obligation or
liability to the Sellers and, other than claims pursuant to this Article 7, the
Sellers will not have any claim or recourse against Buyer, its affiliates or any
of its officers, directors, shareholders, employees or agents, in each case, as
a result of the breach of any representation, warranty, covenant or agreement of
Buyer contained herein or otherwise arising out of or in connection with the
transactions contemplated by this Agreement and the provisions of this Article 7
shall be the sole and exclusive remedy for any such claim by the Sellers for any
such matters, whether such claims are framed in contract, tort or otherwise.
ARTICLE 8. TERMINATION OF AGREEMENT; PAYMENT OF EXPENSES; WAIVER OF CONDITIONS
Section 8.1 TERMINATION OF AGREEMENT. Anything herein to the
contrary notwithstanding, this Agreement may be terminated at any time (such
date of termination being the "Termination Date") before the Closing Date as
follows, and in no other manner:
(a) MUTUAL CONSENT. By mutual written consent of Buyer and the
Sellers;
(b) BY THE SELLERS. By the Sellers upon the material breach of this
Agreement by Buyer, including the failure by Buyer to proceed with the Closing,
notwithstanding the satisfaction of each of the conditions to Closing set forth
in Section 6.1, whereupon the Sellers shall be entitled to pursue such remedies
at law or equity as may be available to them;
(c) BY BUYER. By Buyer upon the material breach of this Agreement by
the Sellers, including the failure by the Sellers to proceed with the Closing,
notwithstanding the satisfaction of each of the conditions to Closing set forth
in Section 6.2, whereupon Buyer shall be entitled to pursue such remedies at law
or equity as may be available to it; or
(d) EXPIRATION DATE. By either Buyer or the Sellers if the Closing
shall not have occurred on or prior to the first anniversary of the date hereof,
which date may be extended by mutual agreement of Buyer and the Sellers or by
either Buyer or the Sellers for an additional three months if the Required
Consents have not been granted by such date and the entity requesting such
extension has diligently pursued such approvals and consents; provided, however,
that no entity may terminate this Agreement in accordance with this Section
8.1(d) if the failure to consummate the Closing shall be due to the action or
failure to act of the party seeking to terminate this Agreement in violation of
its covenants under this Agreement, in which case, the foregoing date shall be
extended by the period of delay due to such action or failure to act.
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Section 8.2 PAYMENT OF EXPENSES; WAIVER OF CONDITIONS. In the event that
this Agreement shall be terminated pursuant to Section 8.1 (other than pursuant
to Sections 8.1(b) or Section 8.1(c)), all obligations of the parties hereto
under this Agreement shall terminate and there shall be no liability of any
party to any other party hereto and each party hereto will pay all costs and
expenses incident to its negotiation and preparation of this Agreement and to
its performance of and compliance with all agreements and conditions contained
herein on its part to be performed or complied with, including the fees,
expenses and disbursements of its counsel, its auditors and its actuaries,
provided, however, that if this Agreement shall be terminated pursuant to
Section 8.1(d), such termination shall not release any party hereto from any
liability that such party may have for any breach occurring prior to the
Termination Date of any representation, warranty or covenant made by such party
in this Agreement.
ARTICLE 9. MISCELLANEOUS
Section 9.1 AMENDMENTS. Subject to applicable law, this Agreement and any
exhibit or schedule attached hereto may only be amended by an instrument in
writing duly signed by or on behalf of each of the parties hereto.
Section 9.2 FEES AND EXPENSES. Any transfer taxes, recordation taxes,
sales taxes, document stamps, filing fees, or other charges levied by any
Governmental Entity on account of the transfer of the Shares from Sellers to
Buyer shall be paid by Buyer. Except as otherwise provided in this Agreement,
each party shall pay its own expenses incurred in connection with the
authorization, preparation, execution, and performance of this Agreement,
including all fees and expenses of counsel, accountants, agents and
representatives, and each party shall be responsible for all fees or commissions
payable to any finder, broker, advisor, or similar person retained by or on
behalf of such party.
Section 9.3 PUBLIC ANNOUNCMENTS. The parties hereto agree that press
releases and other public communications of any sort relating to this Agreement
or the transactions contemplated hereby are subject to the approval of all the
parties hereto, such approval not to be unreasonably withheld or delayed.
Section 9.4 GOVERNING LAW. This agreement and the legal relations between
the parties shall be governed by and construed in accordance with the laws of
the State of Delaware, without reference to the conflicts of laws provisions
thereof.
Section 9.5 NOTICES. All communications under this Agreement shall be in
writing and shall be deemed to have been duly given (i) on the date of receipt
if served personally or by confirmed facsimile or other similar communication
(in which case, a confirming copy will be sent in accordance with clause (ii)),
(ii) on the first day after sending if sent for guaranteed next day delivery by
FedEx or other nationally recognized next-day courier service or (iii) on the
fourth business day after mailing if mailed to the party or parties to whom
notice is to be given by registered or certified mail, return receipt requested,
postage prepaid, and properly addressed as follows:
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If to Buyer:
MJD Ventures, Inc.
c/o 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
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
If to the Sellers or TPGC:
TPG Communications, Inc.
c/o Key Capital Group, Inc.
Dadeland Tower, Suite 603
9500 Dadeland Boulevard
Miami, FL 33156
Attention: J. Milton Lewis
Facsimile: 305-670-7817
With a copy to:
Texas Pacific Group
201 Main Street, Suite 2420
Ft. Worth, TX 76102
Attention: Richard Ekleberry, Esq.
Facsimile: 817-871-4010
and to:
Dow, Lohnes & Albertson PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036
Attention: Stuart A. Sheldon, Esq.
Facsimile: 202-776-2222
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<PAGE>
Any party may change its address for purposes of this Section 9.5 by giving the
other parties hereto notice of the new address in the manner set forth above.
Section 9.6 ASSIGNMENT AND BINDING EFFECT. This Agreement may not be
assigned, by operation of law or otherwise, by any party hereto without the
prior written consent of the other parties and any purported assignment made
without the consent of the other parties shall be void. Notwithstanding the
foregoing, Buyer may assign its rights and obligations under this Agreement to
an affiliate without the prior consent of the Sellers or TPGC, provided that:
(i) such assignee executes documentation reasonably satisfactory to Sellers
evidencing such assignment; (ii) Buyer remains liable to perform the obligations
in full to be performed by Buyer hereunder; and (iii) no such assignment would
be reasonably likely to hinder or delay the Closing as reasonably determined by
the Sellers. Subject to the foregoing, all of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and assigns of the Sellers and Buyer.
Section 9.7 ENTIRE AGREEMENT. This Agreement, the exhibits hereto, the
Disclosure Schedule and other documents delivered pursuant hereto, referred to
herein or executed and delivered in connection with the transactions
contemplated hereby, together with the Confidentiality Agreement, contain the
entire agreement among Buyer, the Sellers and TPGC with respect to the
transactions contemplated herein and, except as provided herein, supersede all
previous negotiations, commitments and writings.
Section 9.8 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
Section 9.9 COUNTERPARTS. This Agreement may be executed and delivered in
one or more counterparts, each of which shall be deemed an original.
Section 9.10 EXCLUSIVE BENEFITS. Nothing in this Agreement is intended to
confer any rights or remedies, whether express or implied, under or by reason of
this Agreement, on any Persons other than the parties hereto and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third Persons to any
party to this Agreement.
Section 9.11 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to Buyer, the Sellers or TPGC, upon any breach
or default of Buyer, the Sellers or TPGC, respectively, 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 in any similar breach or default thereafter occurring; nor shall any
waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring.
Section 9.12 CONSTRUCTION. This Agreement is to be deemed to have been
prepared jointly by the parties hereto after arms length negotiations, and any
uncertainty or ambiguity existing herein shall not be interpreted against any
party, but according to the application of the rules of interpretation of
contracts.
<PAGE>
IN WITNESS WHEREOF, each of the Sellers, TPGC and Buyer has caused
this Agreement to be duly executed on its behalf, as of the day and year first
above written.
SELLERS:
TPG PARTNERS, L.P.
By: TPG GenPar, L.P.
By: TPG Advisors, Inc.
By: /s/ RICHARD P. SCHIFTER
--------------------------------
Name: Richard P. Schifter
Title: Vice President
TPG PARALLEL I, L.P.
By: TPG GenPar, L.P.
By: TPG Advisors, Inc.
By: /s/ RICHARD P. SCHIFTER
---------------------------------
Name: Richard P. Schifter
Title: Vice President
/s/ J. MILTON LEWIS
---------------------------------------
J. MILTON LEWIS
/s/ ROBERT DI PAULI
---------------------------------------
ROBERT DI PAULI
BUYER:
MJD VENTURES, INC.
By: /s/ EUGENE B. JOHNSON
---------------------------------------
Name: Eugene B. Johnson
Title: Executive Vice President
TPGC:
TPG COMMUNICATIONS, INC.
By: /s/ JOHN MILTON LEWIS
---------------------------------------
Name: John Milton Lewis
Title: President
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Exhibit 3.1
FIFTH 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 Fifth Amended and Restated Certificate of
Incorporation (the "AMENDED AND RESTATED 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 "DGCL"). 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 One Hundred
Forty Four Million Six Hundred Thousand (144,600,000) shares of
which (i) Thirty Million (30,000,000) shares shall be designated
as Preferred Stock,
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<PAGE>
par value $0.01 per share (the "PREFERRED STOCK"), and (ii) One
Hundred Fourteen Million Six Hundred Thousand (114,600,000) shares
shall be designated as Common Stock, par value $0.01 per share
(the "COMMON STOCK"). The Common Stock shall consist of three
series (A) 60,000,000 shares of Class A Common Stock (the "CLASS A
COMMON STOCK"), (B) 50,000,000 shares of Class B Common Stock (the
"CLASS B COMMON STOCK") and (C) 4,600,000 shares of Class C Common
Stock (the "CLASS C COMMON STOCK"). The Preferred Stock shall
initially consist of one (1) series, Series D Non-Voting
Convertible Preferred Stock ("SERIES D PREFERRED STOCK"), which
Series D Preferred Stock shall have the rights, preferences,
privileges and restrictions set forth in the Certificate of
Designation of Series D Preferred Stock of the Corporation dated
as of January 19, 2000 (the "SERIES D CERTIFICATE OF
DESIGNATION").
A. COMMON STOCK
(1) RIGHTS GENERALLY. Except as provided herein,
all shares of Class A Common Stock, Class B Common Stock and Class
C Common Stock shall be identical and entitle the holders thereof
to the same rights and privileges.
(2) VOTING RIGHTS OF 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. The
holders of Class B Common Stock and Class C Common Stock shall not
be entitled to any voting rights, except as required by the DGCL.
(3) DIVIDEND RIGHTS OF COMMON STOCK AND STOCK
SPLITS. Whenever dividends upon Preferred Stock at the time
outstanding, to the extent of any preference to which such stock
is entitled, shall have been paid in full, or declared and set
apart for payment, for all current and, if such Preferred Stock
shall have cumulative rights, all past dividend periods, and after
the provisions for any sinking or purchase fund or funds for any
series of Preferred Stock shall have been complied with, the Board
of Directors may declare and pay dividends on the Common Stock,
payable in cash or otherwise, and the holders of shares of
Preferred Stock shall not be entitled to share therein, subject to
the certificate of designation for any outstanding series of
Preferred Stock, provided that, if dividends are declared on the
Common Stock which are payable in shares of Common Stock,
dividends shall be declared which are payable at the same rate on
each class of Common Stock with dividends payable in shares of
Class A Common Stock payable to holders of shares of Class A
Common Stock, dividends payable in shares of Class B Common Stock
shall be payable to holders of shares of Class B Common Stock and
dividends payable in shares of Class C Common Stock shall be
payable to holders of shares of Class C Common Stock; and provided
further, that no dividends payable in shares of Class A Common
Stock, Class
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<PAGE>
B Common Stock or Class C Common Stock shall be declared unless an
adequate number of authorized but unissued shares of Class A
Common Stock, Class B Common Stock or Class C Common Stock, as
applicable, is available as of the date of such declaration. No
subdivision (by any stock split, stock dividend, recapitalization
or otherwise) and no combination (by reverse stock split or
otherwise) of the Class A Common Stock may occur unless the Class
B Common Stock and Class C Common Stock are subdivided or combined
in the same manner, no subdivision (by any stock split, stock
dividend, recapitalization or otherwise) and no combination (by
reverse stock split or otherwise) of the Class B Common Stock may
occur unless the Class A Common Stock and the Class C Common Stock
are subdivided or combined in the same manner and no subdivision
(by any stock split, stock dividend, recapitalization or
otherwise) and no combination (by reverse stock split or
otherwise) of the Class C Common Stock may occur unless the Class
A Common Stock and the Class B Common Stock are subdivided or
combined in the same manner.
(4) LIQUIDATION. In the event of any liquidation,
dissolution or winding up of the Corporation or upon the
distribution of assets of the Corporation, all assets and funds of
the Corporation remaining, after the payment to the holders of
Preferred Stock of the full preferential amounts to which they
shall be entitled pursuant to the certificate of designation for
such series of Preferred Stock, shall be divided and distributed
among the holders of the Common Stock ratably.
(5) CONVERSION RIGHTS.
(A) RIGHT TO CONVERT. The holders of Class B Common Stock
and Class C Common Stock shall not have the right to convert their
shares of Class B Common Stock or Class C Common Stock, as
applicable, into shares of Class A Common Stock at their option.
(B) AUTOMATIC CONVERSION. Each share of Class B Common
Stock shall be converted into one share of Class A Common Stock,
which share shall be duly authorized, validly issued, fully paid
and non-assessable automatically upon receipt of all governmental
approvals necessary to effectuate a change of control, as
contemplated by that certain Stock Purchase Agreement, dated as of
January 4, 2000, by and among the Corporation and certain other
parties thereto, as such agreement may from time to time be
amended in accordance with its terms (the "Stock Purchase
Agreement"). Upon the occurrence of the consummation by the
Corporation of an offering of its Class A Common Stock to the
public pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), in
which the Corporation raises at least $150 million in gross
proceeds or any Conversion Event (as defined herein), each record
holder of Class C Common Stock shall be entitled to convert into
the same
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<PAGE>
number of shares of Class A Common Stock any or all of the shares
of such holder's Class C Common Stock; provided that if the
Corporation has not received all governmental approvals necessary
to effectuate a change of control, as contemplated by the Stock
Purchase Agreement then such shares shall not convert until such
time as the shares of Class B Common Stock are automatically
converted into shares of Class A Common Stock. For purposes
hereof, (i) a "Conversion Event" shall mean any transfer of shares
of Class C Common Stock to any person or persons who are not
affiliates of the transferor, including, without limitation,
pursuant to any public offering or public sale of securities of
the Corporation (including a public offering registered under the
Securities Act, and a public sale pursuant to Rule 144 under the
Securities Act or any similar rule then in force), (ii) a "person"
shall mean any natural person or any corporation, partnership,
joint venture, trust, unincorporated organization and any other
entity or organization and (iii) an "affiliate" with respect to
any person, shall mean such person's spouse, parents, members of
such person's family or such person's lineal descendants and any
other person that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common
control with, such person. In addition, all of the Class C Common
Stock may be automatically and mandatorily converted into the same
number of shares of Class A Common Stock without any action on the
part of any holder upon notice to such effect by the Corporation
to the record holders of Class C Common Stock. In addition, in the
event the Corporation enters into any merger or consolidation
transaction or sells or transfers all or substantially all of its
assets or consummates any form of recapitalization or
reorganization in which the stockholders of the Corporation
immediately preceding such transaction own less than a majority of
the capital stock of the surviving entity immediately following
such transaction, each record holder of Class C Common Stock shall
be entitled to convert into the same number of shares of Class A
Common Stock any or all of the shares of such holder's Class C
Common Stock.
(C) MECHANICS OF CONVERSION. Each holder of Class B Common
Stock or Class C Common Stock whose shares have automatically
converted into shares of Class A Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office
of the Corporation. Thereupon the Corporation shall promptly issue
and deliver to such holder a certificate or certificates for the
number of shares of Class A Common Stock to which such holder is
entitled (equal to one (1) share of Class A Common Stock for each
share of Class B Common Stock or Class C Common Stock being
converted) and shall promptly pay in cash all declared and unpaid
dividends, if any, on the shares of Class B Common Stock or Class
C Common Stock, as applicable, being converted, to and including
the time of conversion. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date
of such surrender of the certificate representing the shares of
Class B Common Stock or Class C Common Stock
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<PAGE>
to be converted, and the person entitled to receive the shares of
Class A Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such shares of
Class A Common Stock on such date.
B. PREFERRED STOCK
1. SERIES OF PREFERRED STOCK. Authority is hereby
expressly granted to the Board of Directors, subject to the
provisions of this Article FOUR and the Series D Certificate of
Designation, to authorize the issuance of one or more series of
Preferred Stock and, with respect to each such series, to fix by
resolution or resolutions providing for the issuance of such
series:
(a) the distinctive designation of such series
and the number of shares which shall constitute such
series;
(b) the cumulative or noncumulative nature of the
dividend, if any, to be paid on the shares of such series;
(c) the dividend rate or rates to which such
shares shall be entitled and the restrictions, limitations
and conditions upon the payment of such dividends, and
date or dates from which such dividends, if declared,
shall be payable, and whether arrearages on the payment of
dividends will bear interest;
(d) whether any limitations or restrictions are
to be imposed upon the declaration or payment of dividends
on the Common Stock while any shares of such series of
Preferred Stock are outstanding;
(e) whether or not the shares of such series
shall be redeemable; the limitations and restrictions with
respect to such redemptions (including whether or not the
shares of such series shall be redeemable at the option of
either the holder or the Corporation or upon the happening
of a specified event); the manner of selecting shares of
such series for redemption if less than all the shares are
to be redeemed; the amount, if any, in addition to any
accrued dividends thereon which the holder of shares of
such series shall be entitled to receive upon the
redemption thereof, which amount may vary at different
redemption dates, may be subject to adjustment and may be
different with respect to shares redeemed through the
operation of any purchase, retirement or sinking fund and
with respect to shares otherwise redeemed; and whether or
not the shares of such series, if redeemable, shall be
redeemable for cash, property, rights or other assets,
including securities of the Corporation or of any other
corporation;
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<PAGE>
(f) whether shares of such series shall rank
senior to shares of the Common Stock with respect to the
payment of dividends and the distribution of assets upon
the voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Corporation, and the
amount which the holders of shares of such series may be
entitled to receive in addition to any accumulated
dividends upon the voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the
Corporation, which amount may vary depending upon whether
such liquidation, dissolution or winding-up of the affairs
is voluntary or involuntary and, if voluntary, may vary at
different dates or otherwise;
(g) whether the shares of such series shall be
subject to the operation of a purchase, retirement or
sinking fund, and if so, whether such purchase, retirement
or sinking fund shall be cumulative or noncumulative, and
the extent to the manner in which such funds shall be
applied to the purchase or redemption of the shares of
such series for retirement or for other purposes and the
terms and provisions relative to the operation of said
fund or funds;
(h) whether the shares of such series shall be
convertible into, or exchangeable for, shares of stock of
any other class or classes of capital stock, or of any
other series of the same class of capital stock, and if so
convertible or exchangeable, the price or prices or the
rate or rates or the term or terms of conversion or
exchange and the method, if any, of adjusting the same;
(i) the voting rights, if any, of such series,
and whether such voting rights shall be contingent upon
the happening of a specified event and whether such voting
rights shall cease upon the happening of a specified
event; and
(j) any other preferences, upon liquidation,
dissolution, winding-up or otherwise and relative,
participating, optional, or other special rights, and
qualifications, limitations, or restrictions thereof not
inconsistent with this Article FOUR, the Series D
Certificate of Designation or any other provision of this
Amended and Restated Certificate of Incorporation.
Subject to the Series D Certificate of Designation, the
Board of Directors also shall have authority to change the designation of
shares, or the relative rights, preferences and limitations of the shares of any
theretofore established series of Preferred Stock, no share of which has been
issued or is subject to any then outstanding warrant, right, call, option or
similar right, and further, the Board of Directors shall have authority to
increase or decrease the number of shares of any series previously determined by
it (provided, however,
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<PAGE>
that the number of shares of any such series shall not be decreased to a number
less than that of the shares of that series then outstanding).
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 and Restated
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 full 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 full 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 at any time any right, preference or
limitation of the Common Stock or the Preferred Stock set forth in
this Amended and Restated
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<PAGE>
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 and Restated
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
and Restated Certificate in the manner now or hereafter prescribed
by statute, and all rights conferred on stockholders herein are
granted subject to this reservation."
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<PAGE>
IN WITNESS WHEREOF, this Fifth Amended and Restated
Certificate of Incorporation has been signed on this 19th day of January, 2000.
By: /s/ Walter E. Leach, Jr.
-------------------------------
Name: Walter E. Leach, Jr.
Title: Senior VP & CFO
Attest:
By: /s/ Timothy W. Henry
----------------------------------
Name: Timothy W. Henry
Title: VP Finance & Treasurer
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<PAGE>
Exhibit 3.3
CERTIFICATE OF DESIGNATION OF
SERIES D PREFERRED STOCK
OF
MJD COMMUNICATIONS, INC.
Section 1. DIVIDENDS.
1A. GENERAL OBLIGATION. When and as declared by the
Corporation's Board of Directors and to the extent permitted under the General
Corporation Law of Delaware, the Corporation shall pay preferential dividends in
kind to the holders of the Series D Preferred Stock (the "SERIES D PREFERRED")
as provided in this Section 1. No dividends shall accrue on the Series D
Preferred from the issue date until the date which is one year after the Issue
Date (the "TRIGGER DATE"). If the Series D Preferred has not converted into
Conversion Stock on or before the Trigger Date, then dividends on each share of
the Series D Preferred (a "SHARE") shall be deemed to have begun accruing as of
the Issue Date and such dividends shall accrue on a daily basis at the Dividend
Rate per annum of the Standard Liquidation Preference thereof from and including
the date of issuance of such Share to and including the first to occur of (i)
the date on which the Liquidation Value of such Share (plus all accrued and
unpaid dividends thereon) is paid to the holder thereof in connection with the
liquidation of the Corporation or the redemption of such Share by the
Corporation, (ii) the date on which such Share is converted into shares of
Conversion Stock hereunder or (iii) the date on which such Share is otherwise
acquired by the Corporation. From the Trigger Date and until the seventh
anniversary thereof, the Dividend Rate shall be 7.0%. On the seventh anniversary
of the Trigger Date and on each anniversary thereafter, the Dividend Rate shall
increase by 200 basis points; provided that in no event shall the Dividend Rate
exceed 13.0%. Dividends shall accrue whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends.
1B. DIVIDEND REFERENCE DATES. To the extent not paid on March
31, June 30, September 30 and December 31 of each year, beginning March 31, 2000
(the "DIVIDEND REFERENCE DATES"), all dividends which have accrued or have been
deemed to have accrued on each Share outstanding during the three-month period
(or other period in the case of the initial Dividend Reference Date) ending upon
each such Dividend Reference Date shall be accumulated and shall remain
accumulated dividends with respect to such Share until paid to the holder
thereof.
1C. DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. 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 D Preferred,
such payment shall be distributed pro rata among the holders thereof based upon
the number of Shares held by each such holder.
<PAGE>
1D. PAYMENT OF DIVIDENDS WITH SHARES. Notwithstanding any
other provision of this Section 1 and excluding cash dividends payable pursuant
to paragraph 1E, any dividends accruing on the Series D Preferred shall be paid
in lieu of cash dividends by the issuance of additional shares of Series D
Preferred (including fractional Shares) having an aggregate Standard Liquidation
Preference at the time of such payment equal to the amount of the dividend to be
paid; provided that if the Corporation pays less than the total amount of
dividends then accrued on the Series D Preferred in the form of additional
Shares, such payment in Shares shall be made pro rata among the holders of
Series D Preferred based upon the aggregate accrued but unpaid dividends on the
Shares held by each such holder. If and when any Shares are issued under this
paragraph 1D for the payment of accrued dividends, such Shares shall be deemed
to be validly issued and outstanding and fully paid and nonassessable.
1E. PARTICIPATING DIVIDENDS. In the event that the Corporation
declares or pays any dividends upon the Common Stock (whether payable in cash,
securities or other property), the Corporation shall also declare and pay to the
holders of the Series D Preferred at the same time that it declares and pays
such dividends to the holders of the Common Stock, the dividends which would
have been declared and paid with respect to the Common Stock issuable upon
conversion of the Series D Preferred had all of the outstanding Series D
Preferred been converted into Class A Common Stock immediately prior to the
record date for such dividend, or if no record date is fixed, the date as of
which the record holders of Common Stock entitled to such dividends are to be
determined; provided that if any dividend consists of voting securities, the
Corporation shall make available to each holder of Series D Preferred, at such
holder's request, dividends consisting of a like number of Shares.
Section 2. LIQUIDATION.
Upon any liquidation, dissolution or winding up of the
Corporation (whether voluntary or involuntary), each holder of Series D
Preferred shall be entitled to be paid, before any distribution or payment is
made upon any Junior Securities, an amount in cash equal to the aggregate
Liquidation Value of all Shares held by such holder (plus all accrued and unpaid
dividends thereon). If upon any such liquidation, dissolution or winding up of
the Corporation the Corporation's assets to be distributed among the holders of
the Series D Preferred are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid under this Section 2, then
the entire assets available to be distributed to the Corporation's stockholders
shall be distributed pro rata among such holders based upon the aggregate
Liquidation Value (plus all accrued and unpaid dividends) of the Series D
Preferred held by each such holder. Not less than 30 days prior to the payment
date stated therein, the Corporation shall mail written notice of any such
liquidation, dissolution or winding up to each record holder of Series D
Preferred, setting forth in reasonable detail the amount of proceeds to be paid
with resect to each Share and each share of Common Stock in connection with such
liquidation, dissolution or winding up. Neither the consolidation or merger of
the Corporation into or with any other entity or entities (whether or not the
Corporation is the surviving entity), nor the sale or transfer by the
Corporation of all or any part of its assets, nor the reduction of the capital
stock of the Corporation nor any other form of recapitalization or
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<PAGE>
reorganization affecting the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
2.
In addition to and after payment in full of all other amounts
payable to the holders of the Series D Preferred under this Section 2, upon any
liquidation, dissolution or winding up of the Corporation (whether voluntary or
involuntary) after the Trigger Date, the holders of the Series D Preferred shall
be entitled to participate on an as if converted basis with the holders of
Common Stock as a single class in the distribution of assets of the Corporation
with respect to the Common Stock.
Section 3. PRIORITY OF SERIES D PREFERRED ON DIVIDENDS AND
REDEMPTIONS.
So long as any Series D Preferred remains outstanding, without
the prior written consent of the holders of a majority of the outstanding shares
of Series D Preferred, the Corporation shall not, nor shall it permit any
Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any
Junior Securities, nor shall the Corporation directly or indirectly pay or
declare any dividend or make any distribution upon any Junior Securities;
provided that the Corporation may repurchase shares of Common Stock from present
or former employees of the Corporation and its Subsidiaries in accordance with
the provisions of the Stockholder's Agreement so long as no Event of
Noncompliance is in existence at the time of or immediately after such
repurchase or would be caused by such repurchase.
Section 4. REDEMPTIONS.
4A. CORPORATION'S OPTIONAL REDEMPTION. At any time on or after
December 31, 2009 (the "SCHEDULED OPTIONAL REDEMPTION DATE"), the Corporation
shall have the option to redeem all outstanding shares of Series D Preferred at
a price per Share equal to the Liquidation Value thereof (plus accrued and
unpaid dividends thereon).
4B. REDEMPTION PAYMENTS. For each Share which is to be
redeemed hereunder, the Corporation shall be obligated on the Redemption Date to
pay to the holder thereof (upon surrender by such holder at the Corporation's
principal office of the certificate representing such Share) an amount in cash
equal to the Liquidation Value of such Share (plus all accrued and unpaid
dividends thereon). If the funds of the Corporation legally available for
redemption of Shares on any Redemption Date are insufficient to redeem the total
number of Shares to be redeemed on such date, those funds which are legally
available shall be used to redeem the maximum possible number of Shares pro rata
among the holders of the Shares to be redeemed based upon the aggregate
Liquidation Value of such Shares held by each such holder (plus all accrued and
unpaid dividends thereon). At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Shares, such funds shall
immediately be used to redeem the balance of the Shares which the Corporation
has become obligated to redeem on any Redemption Date but which it has not
redeemed.
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<PAGE>
4C. NOTICE OF REDEMPTION; OPPORTUNITY TO CONVERT. Except as
otherwise provided herein, the Corporation shall mail written notice of each
redemption of any Series D Preferred (other than a redemption at the request of
a holder or holders of Series D Preferred) to each record holder thereof not
more than 60 nor less than 30 days prior to the date on which such redemption is
to be made and upon receipt of such notice any holder of Series D Preferred may,
at any time prior to the date that is five days prior to the date on which such
redemption is to be made, notify the Corporation that it desires to convert all
or any portion of the Series D Preferred (including any fraction of a Share)
held by such holder into shares of Conversion Stock pursuant to sub-paragraph
6A(ii). The Corporation shall convert any such Shares into Conversion Stock,
effective on the date on which such redemption was to be made, subject to the
restrictions on such conversion set forth in sub-paragraph 6A(ii); provided that
if the Corporation is not obligated to convert the Shares because of the
restrictions set forth in sub-paragraph 6A(ii), then the Corporation no longer
shall have the option to redeem the Shares until such time as they may be
converted into Conversion Stock pursuant to sub-paragraph 6A(ii). In case fewer
than the total number of Shares represented by any certificate are redeemed, a
new certificate representing the number of unredeemed Shares shall be issued to
the holder thereof without cost to such holder within five business days after
surrender of the certificate representing the redeemed Shares.
4D. DETERMINATION OF THE NUMBER OF EACH HOLDER'S SHARES TO BE
REDEEMED. The number of shares of Series D Preferred to be redeemed from each
holder thereof in redemptions hereunder shall be the number of Shares determined
by multiplying the total number of Shares to be redeemed times a fraction, the
numerator of which shall be the total number of Shares then held by such holder
and the denominator of which shall be the total number of Shares then
outstanding.
4E. DIVIDENDS AFTER REDEMPTION DATE. No Share shall be
entitled to any dividends accruing after the Redemption Date. On such date, all
rights of the holder of such Share shall cease, and such Share shall no longer
be deemed to be issued and outstanding.
4F. REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Shares which
are redeemed or otherwise acquired by the Corporation shall be canceled and
retired to authorized but unissued shares and shall not be reissued, sold or
transferred.
4G. OTHER REDEMPTIONS OR ACQUISITIONS. The Corporation shall
not, nor shall it permit any Subsidiary to, redeem or otherwise acquire any
shares of Series D Preferred, except as expressly authorized herein or pursuant
to a purchase offer made pro rata to all holders of Series D Preferred on the
basis of the number of Shares owned by each such holder.
4H. REDEMPTIONS UPON REQUEST. At any time after December 31,
2009, the holder or holders of a majority of the outstanding Series D Preferred
may request redemption of all of their Shares by delivering written notice of
such request to the Corporation. Within five days after receipt of such request,
the Corporation shall give written notice of such request to all other holders
of Series D Preferred, and such other holders may request redemption of their
Shares by delivering written notice to the Corporation within ten days after
receipt of the Corporation's notice. The
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<PAGE>
Corporation shall be required to redeem all Shares with respect to which such
redemption requests have been made at a price per Share equal to the Liquidation
Value thereof (plus all accrued and unpaid dividends thereon) within 20 days
after receipt of the initial redemption request.
Section 5. VOTING RIGHTS.
Except as otherwise provided herein and as otherwise required
by applicable law, the Series D Preferred shall have no voting rights; provided
that each holder Series D Preferred shall be entitled to notice of all
stockholders meetings at the same time and in the same manner as notice is given
to all stockholders entitled to vote at such meetings. Notwithstanding the
foregoing, without the consent of the holder or holders of a majority of the
Shares then outstanding, the Corporation shall not and shall cause its
Subsidiaries to not: (i) operate their respective businesses outside the
ordinary course of business, in a manner not substantially the same as
previously conducted; (ii) issue additional Series D Preferred; (iii) issue any
other Convertible Securities; (iv) create any new class of, issue or change the
terms of any other series of preferred stock having preference or priority as to
dividends or assets senior to or pari passu with the Series D Preferred; (v)
take any action that reclassifies any outstanding Junior Securities into
securities having preference or priority as to dividends or assets senior to or
pari passu with the Series D Preferred; (vi) change the number of shares of
preferred stock authorized by the Corporation; (vii) engage in or agree to
engage in a Public Offering; or (viii) engage in or enter into any agreement to
engage in, or become the subject of, any Change of Ownership, Fundamental Change
or Organic Change; provided, however, that if the Corporation has been advised
in writing by counsel that, because of a change in applicable law or a change in
the terms of any license or permit subsequent to the Issue Date, the exercise of
any particular right to consent would cause the Corporation or any of its
Subsidiaries to be in breach or violation of any permit for license held by any
of them or any law, rule or regulation applicable to them, then the holders of
Series D Preferred shall not be entitled to exercise that right to consent; and
provided further that, in such circumstances, the Corporation will use its
reasonable best efforts to obtain any required approvals or consents necessary
to enable the holders of Series D Preferred to exercise their full rights to
consent hereunder.
Section 6. CONVERSION.
6A. CONVERSION PROCEDURE.
(i) Automatically upon receipt of all governmental approvals
necessary to effectuate a change of control, as contemplated in the Purchase
Agreement, all Shares shall convert (and such conversion shall be deemed to have
been effected immediately) into a number of shares of Conversion Stock (such
Conversion Stock being Class A Common Stock) computed by multiplying the number
of shares to be converted by $262.33 and dividing the result by the Conversion
Price then in effect.
(ii) At any time and from time to time, any holder of Shares
may convert all or any portion of the Shares (including any fraction of a Share)
held by such holder into a number of
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<PAGE>
shares of Conversion Stock (such Conversion Stock being Class B Common Stock)
computed by multiplying the number of shares to be converted by $262.33 and
dividing the result by the Conversion Price then in effect; provided, however,
that if the Corporation has been advised in writing by counsel that, because of
a change in applicable law or a change in the terms of any license or permit
subsequent to the Issue Date, the conversion of such Shares into Conversion
Stock would cause the Corporation or any of its Subsidiaries to be in breach or
violation of any permit or license held by any of them or any law, rule or
regulation applicable to them, then the Corporation shall not be obligated to
convert such Shares and such holder shall not have the right to have such Shares
converted; and provided further that, in such circumstances, the Corporation
will use its reasonable best efforts to obtain any required approvals or
consents necessary to enable the holders of Series D Preferred to convert their
Shares hereunder.
(iii) Any portion of the accrued and unpaid dividends on
Shares being converted pursuant to sub-paragraph (i) or (ii) may, at the
converting holder's option, be converted into an additional number of shares of
Conversion Stock determined by dividing the amount of the unpaid dividends to be
applied for such purpose, by the Conversion Price then in effect; at the time of
the conversion, the Corporation shall pay in full in cash any portion of the
accrued and unpaid dividends not so converted. If any fractional interest in a
share of Conversion Stock would be delivered pursuant to sub-paragraphs (i),
(ii) or (iii) of this paragraph 6A, the Corporation, in lieu of delivering the
fractional share therefor, shall pay an amount to the holder thereof equal to
the Market Price of such fractional interest as of the date of conversion.
(iv) Except as otherwise provided herein, each conversion of
Shares shall be deemed to have been effected as of the close of business on the
date on which the certificate or certificates representing the Shares to be
converted have been surrendered, duly endorsed in blank, for conversion at the
principal office of the Corporation. At the time any such conversion has been
effected, the rights of the holder of the Shares converted as a holder of Series
D Preferred shall cease and the Person or Persons in whose name or names any
certificate or certificates for shares of Conversion Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Conversion Stock represented thereby.
(v) The conversion rights of any Share subject to redemption
hereunder shall terminate on the Redemption Date for such Share unless the
Corporation has failed to pay to the holder thereof the Liquidation Value of
such Share (plus all accrued and unpaid dividends thereon).
(vi) Notwithstanding any other provision hereof, if a
conversion of Shares is to be made in connection with a Public Offering, a
Change in Ownership, a Fundamental Change or other transaction affecting the
Corporation, the conversion of any Shares may, at the election of the holder
thereof, be conditioned upon the consummation of such transaction, in which case
such conversion shall not be deemed to be effective until such transaction has
been consummated.
(vii) As soon as possible after a conversion has been effected
(but in any event within five business days in the case of subparagraph (a)
below), the Corporation shall deliver to the
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<PAGE>
converting holder (provided that the converting holder has previously
surrendered to the Corporation the certificate(s) representing the Shares
converted, duly endorsed in blank):
(a) a certificate or certificates representing the
number of shares of Conversion Stock issuable by reason of such
conversion in such name or names and such denomination or denominations
as the converting holder has specified; and
(b) a certificate representing any Shares that were
represented by the certificate or certificates delivered to the
Corporation in connection with such conversion but which were not
converted.
(viii) The issuance of certificates for shares of Conversion
Stock upon conversion of Series D Preferred shall be made without charge to the
holders of such Shares for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares of Conversion Stock. Upon conversion of each Share, the
Corporation shall take all such actions as are necessary in order to insure that
the Conversion Stock issuable with respect to such conversion shall be validly
issued, fully paid and nonassessable, free and clear of all taxes, liens,
charges and encumbrances with respect to the issuance thereof, except those
created by the holder or under the Stockholders Agreement.
(ix) The Corporation shall not close its books against the
transfer of Series D Preferred or of Conversion Stock issued or issuable upon
conversion of Shares in any manner which interferes with the timely conversion
of Series D Preferred. The Corporation shall assist and cooperate with any
holder of Series D Preferred required to make any governmental filings or obtain
any governmental approval prior to or in connection with any conversion of
Shares hereunder (including, without limitation, making any filings required to
be made by the Corporation).
(x) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Class A Common Stock and
Class B Common Stock, solely for the purpose of issuance upon the conversion of
the Series D Preferred, such number of shares of Conversion Stock issuable upon
the conversion of all outstanding Series D Preferred and for payment in kind of
all accrued and unpaid dividends at least through December 31, 2009. All shares
of Conversion Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Corporation shall take all such actions as may be necessary to
assure that all such shares of Conversion Stock may be so issued without
violation of any applicable law or governmental regulation or any requirements
of any domestic securities exchange upon which shares of Conversion Stock may be
listed (except for official notice of issuance which shall be immediately
delivered by the Corporation upon each such issuance). The Corporation shall not
take any action which would cause the number of authorized but unissued shares
of Class A Common Stock and Class B Common Stock to be less than the number of
such shares required to be reserved hereunder for issuance upon conversion of
the Series D Preferred.
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6B. CONVERSION PRICE.
(i) The initial Conversion Price shall be $262.33. In order
to prevent dilution of the conversion rights granted under this Section 6, the
Conversion Price shall be subject to adjustment from time to time pursuant to
this paragraph 6B.
(ii) If and whenever after the Issue Date the Corporation
issues or sells, or in accordance with paragraph 6C is deemed to have issued or
sold, any share of Common Stock for a consideration per share less than the
Conversion Price in effect immediately prior to such issue or sale, then
immediately upon such issue or sale or deemed issue or sale the Conversion Price
shall be reduced to the Conversion Price determined by dividing (a) the sum of
(1) the product derived by multiplying the Conversion Price in effect
immediately prior to such issue or sale by the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale, plus (2) the
consideration, if any, received by the Corporation upon such issue or sale, by
(b) the number of shares of Common Stock Deemed Outstanding immediately after
such issue or sale; provided that, notwithstanding the foregoing, any conversion
of Shares prior to the Trigger Date shall be at a Conversion Price of $262.33.
(iii) Notwithstanding the foregoing, there shall be no
adjustment to the Conversion Price hereunder with respect to the granting of
stock options with an exercise price of at least $262.33 to employees,
directors, consultants and vendors of the Corporation and its Subsidiaries or
the exercise thereof for an aggregate of 137,500 shares of Common Stock (as such
exercise price and number of shares are equitably adjusted for subsequent stock
splits, stock combinations, stock dividends and recapitalizations and such
number of shares shall not include any stock options outstanding as of the date
of the Purchase Agreement).
6C. EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes
of determining the adjusted Conversion Price under paragraph 6B, the following
shall be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any
manner grants or sells any Option and the price per share for which Common Stock
is issuable upon the exercise of any such Option, or upon conversion or exchange
of any Convertible Security issuable upon exercise of any such Option, is less
than (a) the Conversion Price in effect immediately prior to the time of the
granting or sale of such Option or (b) the Market Price of the Common Stock
determined as of such time, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to be outstanding and to have been
issued and sold by the Corporation at the time of the granting or sale of such
Option for such price per share. For purposes of this paragraph, the "price per
share for which Common Stock is issuable" shall be determined by dividing (A)
the total amount, if any, received or receivable by the Corporation as
consideration for the granting or sale of such Options, plus the minimum
aggregate amount of additional consideration payable to the Corporation upon
exercise of all such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate
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amount of additional consideration, if any, payable to the Corporation upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Conversion Price shall be made upon the actual issue of such
Common Stock or such Convertible Security upon the exercise of such Options or
upon the actual issue of such Common Stock upon conversion or exchange of such
Convertible Security.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation
in any manner issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon conversion or exchange thereof is less
than (a) the Conversion Price in effect immediately prior to the time of such
issue or sale or (b) the Market Price of the Common Stock determined as of such
time, then the maximum number of shares of Common Stock issuable upon conversion
or exchange of such Convertible Securities shall be deemed to be outstanding and
to have been issued and sold by the Corporation at the time of the issuance or
sale of such Convertible Securities for such price per share. For the purposes
of this paragraph, the "price per share for which Common Stock is issuable"
shall be determined by dividing (A) the total amount received or receivable by
the Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (B)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment of the
Conversion Price shall be made when Common Stock is actually issued upon the
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustments of the Conversion Price had been or are to be made pursuant to
other provisions of this Section 6, no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the
purchase price provided for in any Option, the additional consideration (if any)
payable upon the issue, conversion or exchange of any Convertible Security or
the rate at which any Convertible Security is convertible into or exchangeable
for Common Stock changes at any time, then the Conversion Price in effect at the
time of such change shall be adjusted immediately to the Conversion Price which
would have been in effect at such time had such Option or Convertible Security
originally provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted, issued or
sold; provided that if such adjustment of the Conversion Price would result in
an increase in the Conversion Price then in effect, such adjustment shall not be
effective until 30 days after written notice thereof has been given to all
holders of the Series D Preferred. For purposes of this paragraph 6C, if the
terms of any Option that was outstanding as of the date of issuance of the
Series D Preferred are changed in the manner described in the immediately
preceding sentence, then such Option and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change; provided that no such change shall at any time cause
the Conversion Price hereunder to be increased.
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(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Security without the exercise of any such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Security, to
the extent outstanding immediately prior to such expiration or termination,
never been issued; provided that if such expiration or termination would result
in an increase in the Conversion Price then in effect, such increase shall not
be effective until 30 days after written notice thereof has been given to all
holders of the Series D Preferred. For purposes of paragraph 6C, the expiration
or termination of any Option that was outstanding as of the date of issuance of
the Series D Preferred shall not cause the Conversion Price hereunder to be
adjusted unless, and only to the extent that, a change in the terms of such
Option or Convertible Security caused it to be deemed to have been issued after
the date of issuance of the Series D Preferred.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Option or Convertible Security is issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Corporation therefor (net of discounts,
commissions and related expenses). If any Common Stock, Option or Convertible
Security is issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Corporation shall be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Corporation shall be the Market Price thereof as of the date of receipt. If any
Common Stock, Option or Convertible Security is issued to the owners of the
non-surviving entity in connection with any merger in which the Corporation is
the surviving corporation, the amount of consideration therefor shall be deemed
to be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Option or
Convertible Security, as the case may be. The fair value of any consideration
other than cash and securities shall be determined jointly by the Corporation
and the holders of a majority of the outstanding Series D Preferred. If such
parties are unable to reach agreement within a reasonable period of time, the
fair value of such consideration shall be determined by an independent appraiser
experienced in valuing such type of consideration jointly selected by the
Corporation and the holders of a majority of the outstanding Series D Preferred.
The determination of such appraiser shall be final and binding upon the parties,
and the fees and expenses of such appraiser shall be borne by the Corporation.
(vi) INTEGRATED TRANSACTIONS. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $0.01.
(vii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation or any
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Subsidiary, and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock.
(viii) RECORD DATE. If the Corporation takes a record of the
holders of Common Stock for the purpose of entitling them (a) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (b) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date shall be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or upon the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
6D. SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and if
the Corporation at any time combines (by reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
6E. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets or other
transaction, in each case which is effected in such a manner that the holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock, is referred to herein as an "ORGANIC CHANGE." Prior to the
consummation of any Organic Change, the Corporation shall make appropriate
provisions (in form and substance reasonably satisfactory to the holders of a
majority of the Series D Preferred then outstanding) to insure that each of the
holders of Series D Preferred shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be) the shares of
Conversion Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Series D Preferred, such shares of stock, securities
or assets as such holder would have received in connection with such Organic
Change if such holder's Series D Preferred had converted into Class A Common
Stock immediately prior to such Organic Change. In each such case, the
Corporation shall also make appropriate provisions (in form and substance
reasonably satisfactory to the holders of a majority of the Series D Preferred
then outstanding) to insure that the provisions of this Section 6 and Section 7
hereof shall thereafter be applicable to the Series D Preferred (including, in
the case of any such consolidation, merger or sale in which the successor entity
or purchasing entity is other than the Corporation, an immediate adjustment of
the Conversion Price to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and a corresponding immediate adjustment in
the number of shares of Conversion Stock acquirable and receivable upon
conversion of Series D Preferred, if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation, merger or
sale). The Corporation shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof, the successor entity (if other than
the Corporation) resulting from
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consolidation or merger or the entity purchasing such assets assumes by written
instrument (in form and substance reasonably satisfactory to the holders of a
majority of the Series D Preferred then outstanding), the obligation to deliver
to each such holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to acquire.
6F. CERTAIN EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 6 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Corporation's Board of Directors shall make an appropriate adjustment
in the Conversion Price so as to protect the rights of the holders of Series D
Preferred; provided that no such adjustment shall increase the Conversion Price
as otherwise determined pursuant to this Section 6 or decrease the number of
shares of Conversion Stock issuable upon conversion of each share of Series D
Preferred.
6G. NOTICES.
(i) Not later than five days after any adjustment of the
Conversion Price, the Corporation shall give written notice thereof to all
holders of Series D Preferred, setting forth in reasonable detail and certifying
the calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders
of Series D Preferred at least 20 days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any dividend
or distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to the
holders of Series D Preferred at least 20 days prior to the date on which any
Organic Change shall take place.
Section 7. PURCHASE RIGHTS.
If at any time the Corporation grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "PURCHASE RIGHTS"), then each holder of Series D Preferred
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Conversion Stock acquirable upon
conversion of such holder's Series D Preferred immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or if no such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights;
provided that if the Purchase Rights involve voting securities, the Corporation
shall make available to each holder of Series D Preferred, at such holder's
request, Purchase Rights involving a like number of additional shares of Series
D Preferred.
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Section 8. EVENTS OF NONCOMPLIANCE.
8A. DEFINITION. An Event of Noncompliance shall have occurred
if:
(i) the Corporation fails to make any redemption payment with
respect to the Series D Preferred which it is required to make hereunder,
whether or not such payment is legally permissible or is prohibited by any
agreement to which the Corporation is subject;
(ii) the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein; provided that no Event
of Noncompliance shall have occurred under this subparagraph (ii) if the
Corporation establishes (to the reasonable satisfaction of the holder or holders
of a majority of the Series D Preferred then outstanding) that (a) the
particular Event of Noncompliance has not been caused by knowing or purposeful
conduct by the Corporation or any Subsidiary, (b) the Corporation has exercised,
and continues to exercise, reasonable best efforts to expeditiously cure the
Event of Noncompliance (if cure is possible), (c) the Event of Noncompliance is
not material to the financial condition, operating results, operations, assets
or business prospects of the Corporation and its Subsidiaries, taken as a whole,
and (d) the Event of Noncompliance is not material to any holder's investment in
the Series D Preferred;
(iii) the Corporation or any Subsidiary makes an assignment
for the benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Corporation or any Subsidiary bankrupt or insolvent; or any
order for relief with respect to the Corporation or any Subsidiary is entered
under the Federal Bankruptcy Code; or the Corporation or any Subsidiary
petitions or applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Corporation or any Subsidiary or of any
substantial part of the assets of the Corporation or any Subsidiary, or
commences any proceeding (other than a proceeding for the voluntary liquidation
and dissolution of a Subsidiary) relating to the Corporation or any Subsidiary
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction; or any such petition
or application is filed, or any such proceeding is commenced, against the
Corporation or any Subsidiary and either (a) the Corporation or any such
Subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein or (b) such petition, application or proceeding is not
dismissed within 60 days;
(iv) a judgment in excess of $5,000,000 is rendered against
the Corporation or any Subsidiary and, within 60 days after entry thereof, such
judgment is not discharged or execution thereof stayed pending appeal, or within
60 days after the expiration of any such stay, such judgment is not discharged;
or
(v) the Corporation or any Subsidiary defaults in the
performance of any obligation or agreement under its Credit Agreement, any
subsequent agreement which becomes its principal credit facility, its Indenture
or any subsequent high yield indenture then in effect, if the effect of such
default is to cause an amount exceeding $5,000,000 to become due prior to its
stated maturity or to permit the holder or holders of any obligation to cause an
amount exceeding $5,000,000 to become due prior to its stated
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maturity, unless such default is cured within 30 days without an amount
exceeding $5,000,000 becoming due prior to its stated maturity.
8B. CONSEQUENCES OF EVENTS OF NONCOMPLIANCE.
(i) If an Event of Noncompliance has occurred and is
continuing, the dividend rate on the Series D Preferred shall increase
immediately by an increment of 200 basis points. Thereafter, until such time as
no Event of Noncompliance exists, the dividend rate shall increase automatically
at the end of each succeeding 180-day period by an additional increment of 25
basis points (but in no event shall the dividend rate exceed 12%). Any increase
of the dividend rate resulting from the operation of this subparagraph shall
terminate as of the close of business on the date on which no Event of
Noncompliance exists, subject to subsequent increases pursuant to this
sub-paragraph. Notwithstanding the foregoing, if an Event of Noncompliance
occurs prior to the Trigger Date, then the consequences of the Event of
Noncompliance pursuant to this sub-paragraph shall be tolled until the Trigger
Date (but then shall occur as if no tolling had taken place).
(ii) If any Event of Noncompliance exists, each holder of
Series D Preferred shall also have any other rights which such holder is
entitled to under any contract or agreement at any time and any other rights
which such holder may have pursuant to applicable law.
Section 9. REGISTRATION OF TRANSFER.
The Corporation shall keep at its principal office a register
for the registration of Series D Preferred. Upon the surrender of any
certificate representing Series D Preferred at such place, the Corporation
shall, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange therefor representing in the aggregate the number of Shares represented
by the surrendered certificate. Each such new certificate shall be registered in
such name and shall represent such number of Shares as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate, and dividends shall accrue on the Series D
Preferred represented by such new certificate from the date to which dividends
have been fully paid on such Series D Preferred represented by the surrendered
certificate.
Section 10. REPLACEMENT.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Series D Preferred, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of
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like kind representing the number of Shares of such class represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on
the Series D Preferred represented by such new certificate from the date to
which dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.
Section 11. DEFINITIONS.
"CHANGE IN OWNERSHIP" means any sale, transfer or issuance or
series of sales, transfers and/or issuances of Common Stock by the Corporation
or any holders thereof which results in any Person or group of Persons (as the
term "group" is used under the Securities Exchange Act of 1934), other than the
holders of Common Stock and Series D Preferred as of the date of the Purchase
Agreement, (a) owning more than 50% of the Common Stock outstanding at the time
of such sale, transfer or issuance or series of sales, transfers and/or
issuances or (b) having a right to nominate, appoint, designate or elect at
least a majority of the Corporation's Board of Directors.
"CLASS A COMMON STOCK" means the Corporation's Class A Common
Stock, par value $0.01 per share.
"CLASS B COMMON STOCK" means the Corporation's Class B
Non-Voting Common Stock, par value $0.01 per share.
"COMMON STOCK" means, collectively, the Corporation's Class A
Common Stock, the Corporation's Class B Common Stock, the Corporation's Class C
Common Stock, par value $0.01 per share, and any capital stock of any class of
the Corporation hereafter authorized which is not limited to a fixed sum or
percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Corporation.
"COMMON STOCK DEEMED OUTSTANDING" means, at any given time,
the number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to
subparagraphs 6C(i) and 6C(ii) hereof whether or not the Options or Convertible
Securities are actually exercisable at such time, but excluding any shares of
Common Stock issuable upon conversion of the Series D Preferred.
"CONVERSION STOCK" means shares of the Corporation's Class A
Common Stock in the case (and only in such case) of a conversion pursuant to
sub-paragraph 6A(i) or shares of the Corporation's Class B Common Stock in the
case of any other conversion pursuant to this Certificate of Designation;
provided that if there is a change such that the securities issuable upon
conversion of the Series D Preferred are issued by an entity other than the
Corporation or there is a change in the type or class of securities so issuable,
then the term "Conversion Stock" shall mean one share of the security issuable
upon conversion of the Series D Preferred if such security is issuable in
shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.
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"CONVERTIBLE SECURITIES" means any stock or securities
directly or indirectly convertible into or exchangeable for any class of Common
Stock.
"CREDIT AGREEMENT" means the Corporation's Credit Agreement,
dated March 30, 1998, among the Corporation, various lending institutions,
NationsBank of Texas, N.A. and Bankers Trust Company, as such agreement from
time to time may be amended in accordance with its terms.
"FUNDAMENTAL CHANGE" means (a) any sale or transfer of more
than 50% of the assets of the Corporation and its Subsidiaries on a consolidated
basis (measured either by book value in accordance with generally accepted
accounting principles consistently applied or by fair market value determined in
the reasonable good faith judgment of the Corporation's Board of Directors) in
any transaction or series of transactions (other than sales in the ordinary
course of business) and (b) any merger or consolidation to which the Corporation
is a party.
"INDENTURE" means the Corporation's Indenture, dated May 5,
1998, between the Corporation and United States Trust Company of New York, as
such agreement from time to time may be amended in accordance with its terms.
"ISSUE DATE" means the date the Shares initially are issued,
which shall be the Closing Date as that term is defined in the Purchase
Agreement. The date on which the Corporation initially issues any Share shall be
deemed to be its Issue Date regardless of the number of times transfer of such
Share is made on the stock records maintained by or for the Corporation and
regardless of the number of certificates which may be issued to evidence such
Share.
"JUNIOR SECURITIES" means any capital stock or other equity
securities of the Corporation, except for the Series D Preferred.
"LIQUIDATION VALUE" of any Share as of any particular date
shall be equal to the greater of (a) 101.5% of the Standard Liquidation
Preference or (b) the Market Price of the Conversion Stock.
"MARKET PRICE" of any security means the average of the
closing prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day. If at any time such security is not
listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" shall be the fair value thereof
determined jointly by the
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Corporation and the holders of a majority of the Series D Preferred. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an independent appraiser experienced in
valuing securities jointly selected by the Corporation and the holders of a
majority of the Series D Preferred. The determination of such appraiser shall be
final and binding upon the parties, and the Corporation shall pay the fees and
expenses of such appraiser.
"OPTIONS" means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities.
"PERSON" means an individual, a partnership, a corporation, a
limited liability company, a limited liability, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.
"PUBLIC OFFERING" means any offering by the Corporation of its
capital stock or equity securities to the public pursuant to an effective
registration statement under the Securities Act of 1933, as amended and the
rules and regulations thereunder.
"PURCHASE AGREEMENT" means the Stock Purchase Agreement, dated
January 4, 2000, by and among the Corporation and certain other parties thereto,
as such agreement from time to time may be amended in accordance with its terms.
"REDEMPTION DATE" as to any Share means the date specified in
the notice of any redemption at the Corporation's option or at the holder's
option or the applicable date specified herein in the case of any other
redemption; provided that no such date shall be a Redemption Date unless the
Liquidation Value of such Share (plus all accrued and unpaid dividends thereon
and any required premium with respect thereto) is actually paid in full on such
date, and if not so paid in full, the Redemption Date shall be the date on which
such amount is fully paid.
"STANDARD LIQUIDATION PREFERENCE" of any Share as of any
particular date means $262.33 plus all accumulated and unpaid dividends thereon.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement,
dated the Issue Date, by and among the Corporation and certain other parties
thereto, as such agreement from time to time may be amended in accordance with
its terms.
"SUBSIDIARY" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of
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that person or a combination thereof. For purposes hereof, a Person or Persons
shall be deemed to have a majority ownership interest in a limited liability
company, partnership, association or other business entity if such Person or
Persons shall be allocated a majority of limited liability company, partnership,
association or other business entity gains or losses or shall be or control the
managing general partner of such limited liability company, partnership,
association or other business entity.
Section 12. AMENDMENT AND WAIVER.
No amendment, modification or waiver shall be binding or
effective with respect to this Certificate of Designation without the prior
written consent of the holders of at least a majority of the Series D Preferred
outstanding at the time such action is taken; provided that no such action shall
change (a) the rate at which or the manner in which dividends on the Series D
Preferred accrue or the times at which such dividends become payable or the
amount payable on redemption of the Series D Preferred or the times at which
redemption of Series D Preferred is to occur, without the prior written consent
of the holder or holders of at least two-thirds of the Series D Preferred then
outstanding, (b) the Conversion Price of the Series D Preferred or the number of
shares or class of stock into which the Series D Preferred is convertible,
without the prior written consent of the holder or holders of at least
two-thirds of the Series D Preferred then outstanding or (c) the percentage
required to approve any change described in clauses (a) and (b) above, without
the prior written consent of the holder or holders of at least two-thirds of the
Series D Preferred then outstanding; and provided further that no change in the
terms hereof may be accomplished by merger or consolidation of the Corporation
with another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Series D
Preferred then outstanding.
Section 13. NOTICES.
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be delivered by registered or
certified mail, return receipt requested and postage prepaid, or by reputable
overnight courier service, charges prepaid, and shall be deemed to have been
given when so mailed or sent (i) to the Corporation, at its principal executive
offices and (ii) to any stockholder, at such holder's address as it appears in
the stock records of the Corporation (unless otherwise indicated by any such
holder).
18
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Exhibit 10.25
================================================================================
STOCKHOLDERS' AGREEMENT
OF
MJD COMMUNICATIONS, INC.
Dated as of January 20, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. Restrictions on Transfers of Shares by Founders and Management
Stockholders...............................................................1
1.1. Restrictions Generally..........................................1
1.2. Treatment of Certain Bergstein Family Members...................3
1.3. Treatment of JED................................................3
1.4. Right of First Refusal..........................................3
1.5. Tag-Along Rights................................................5
2. Restrictions on Transfers of Shares by Investor Stockholders...............5
2.1. Restrictions Generally..........................................5
2.2. Right of First Offer............................................6
2.3. Tag-Along Rights................................................8
2.4. Drag-Along Rights...............................................8
3. Management Stockholders...................................................10
3.1. Right of the Company to Purchase..............................10
3.2. Notice to Management Stockholders..............................11
3.3. Payment........................................................11
3.4. Appraisal......................................................11
3.5. Fair Market Value..............................................11
3.6. Acknowledgment of Status.......................................12
3.7. Prohibited Purchases...........................................12
4. Involuntary Transfers.....................................................13
5. Auction Sale Procedure....................................................13
5.1. General........................................................13
5.2. Retention of Investment Bank...................................14
5.3. Preparation of Confidential Memorandum.........................14
5.4. Auction Procedures.............................................14
5.5. Selection of Bid...............................................14
5.6. Negotiation of Sale Agreement..................................14
5.7. Right of Remaining Stockholders to Bid.........................15
5.8. Cooperation....................................................15
<PAGE>
6. Issuance of Additional Equity Securities..................................15
6.1. Preemptive Rights of the Stockholders..........................15
6.2. Investments....................................................16
6.3. Participation by the Stockholders..............................16
7. Corporate Governance......................................................17
7.1. Election of Directors..........................................17
7.2. Five Year Plan and Annual Budget...............................19
7.3. Records and Reports, etc.......................................19
7.4. Board Meetings, Committees, etc................................20
7.5. Directors' and Officers' Insurance.............................21
8. Actions Requiring Approval of the Investor Stockholders...................21
8.1. General........................................................21
9. Stock Certificate Legends.................................................23
10. Absence of Other Arrangements............................................24
11. New Management Stockholders..............................................24
12. Parties..................................................................24
12.1. Assignment by the Company.....................................24
12.2. Assignment Generally..........................................25
12.3. Termination...................................................25
12.4. Agreements to Be Bound........................................25
12.5. THL Related Parties, THL Holders, Kelso Holders...............26
13. Defined Terms............................................................27
14. Miscellaneous............................................................32
14.1. Recapitalizations, Exchanges, etc. Affecting the Shares.......32
14.2. Non-Competition Agreement.....................................32
14.3. No Third Party Beneficiaries..................................32
14.4. Further Assurances............................................32
14.5. Amendment and Modification....................................33
14.6. Governing Law.................................................33
14.7. Invalidity of Provision.......................................33
14.8. Notices.......................................................33
14.9. Headings; Execution in Counterparts...........................35
14.10. Injunctive Relief............................................36
ii
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14.11. Entire Agreement.............................................36
14.12. Transfer of Shares from MJD Partners.........................36
SCHEDULES
Schedule A THL Related Parties
Schedule B Management Stockholders
Schedule C Kelso Holders
EXHIBITS
Exhibit A Five Year Plan
Exhibit B Spousal Waiver
ANNEXES
Annex A Kelso Approval Rights
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STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of January 20, 2000, among
MJD Communications, Inc., a Delaware corporation (the "COMPANY"), Kelso
Investment Associates V, L.P., a Delaware limited partnership ("KIA V"), Kelso
Equity Partners V, L.P., a Delaware limited partnership ("KEP V"; together with
KIA V, "KELSO"), Thomas H. Lee Equity Fund IV, L.P., a Delaware limited
partnership ("THL FUND IV"), those parties listed on Schedule A attached hereto
(collectively, the "THL RELATED PARTIES"; together with THL Fund IV, "THL" and
each of them together with Kelso, the "INVESTOR STOCKHOLDERS"), JED
Communications Associates, Inc., a Delaware corporation (formerly named Bugger
Associates, Inc. ("JED"), Daniel G. Bergstein ("BERGSTEIN"), Joel Bergstein,
Michael Bergstein, Lindy Sobel Bergstein, Meyer Haberman ("HABERMAN"; together
with JED, and Bergstein, Joel Bergstein, Michael Bergstein and Lindy Sobel
Bergstein, the "FOUNDERS"), Jordan Bergstein, Elizabeth Heller, and those
employees of the Company listed on Schedule B attached hereto, as the same shall
be amended from time to time in accordance with Section 12 (collectively, the
"MANAGEMENT STOCKHOLDERS"). For purposes of this Agreement, KIA V and KEP V
shall be deemed to be a single Investor Stockholder and THL Fund IV and each of
the THL Related Parties shall be deemed to be a single Investor Stockholder. The
Investor Stockholders, the Founders and the Management Stockholders are
hereinafter referred to collectively as the "STOCKHOLDERS".
Capitalized terms used herein without definition are defined
in Section 13.
The parties hereto agree as follows:
1. RESTRICTIONS ON TRANSFERS OF SHARES BY FOUNDERS AND
MANAGEMENT STOCKHOLDERS. 1.1. RESTRICTIONS GENERALLY. (a) Prior to such time as
each Investor Stockholder (and the Kelso Holders or THL Holders, as applicable),
each own less than 50% of the number of Shares owned by such Investor
Stockholder on the Closing Date (the "50% CONDITION"), no Founder or Management
Stockholder may Transfer any Shares or any interest therein now or hereafter
owned by such Founder or Management Stockholder, except for (I) any (A)
involuntary Transfer to a third party in accordance with Section 4, (B) sale to
one or more third parties pursuant to Section 2.3 ("Tag-Along Rights"), Section
2.4 ("Drag-Along Rights") or Section 5 ("Auction Sale Procedure") or (C) sale
pursuant to a Registration in accordance with the Registration Rights Agreement,
(ii) any Transfer for estate-planning purposes of such Founder or
<PAGE>
Management Stockholder, authorized by the prior written approval (not to be
unreasonably withheld) of the Board (excluding such Founder or Management
Stockholder and any other interested Board members), and PROVIDED that the
restrictions contained in this Section 1 shall continue to be applicable to the
Shares after any such Transfer and PROVIDED further that the transferees of such
Shares shall have complied with Section 12.4, (A) a trust under which the
distribution of the Shares may be made only to beneficiaries who are such
Founder or Management Stockholder, his or her spouse, his or her parents,
members of his or her immediate family or his or her lineal descendants, (B) a
charitable remainder trust, the income from which will be paid to such Founder
or Management Stockholder during his or her life, (C) a corporation, the
stockholders of which are only such Founder or Management Stockholder, his or
her spouse, his or her parents, members of his or her immediate family or his or
her lineal descendants or (D) a partnership or limited liability company, the
partners or members of which are only such Founder or Management Stockholder,
his or her spouse, his or her parents, members of his or her immediate family or
his or her lineal descendants, (III) any Transfer in case of the death of such
Founder (other than JED) or Management Stockholder, by will or by the laws of
intestate succession, to his or her executors, administrators, testamentary
trustees, legatees or beneficiaries and PROVIDED that the restrictions contained
in this Section 1 shall continue to be applicable to the Shares after any such
Transfer and PROVIDED further that the transferees of such Shares shall have
complied with Section 12.4, or (IV) Transfer by JED, authorized by the prior
written approval (not to be unreasonably withheld) of the Board (excluding
interested Board members), to an Affiliate of JED that agrees to be bound by the
terms of this Agreement pursuant to Section 12.4.
(b) After the 50% Condition has been satisfied, the Founders
and Management Stockholders may Transfer any Shares or any interest therein now
or hereafter owned by such Founder or Management Stockholder, PROVIDED that such
sale is made in compliance with the provisions of Section 1.4 ("Right of First
Refusal") and Section 1.5 ("Tag-Along Rights"), or such sale is made pursuant to
Section 2.4 ("Drag-Along Rights") or Section 5 ("Auction Sale Procedure"), or
such sale is pursuant to a Registration effected in accordance with the
Registration Rights Agreement.
(c) Notwithstanding anything in this Agreement to the
contrary, a Founder or Management Stockholder may pledge any or all Shares now
or hereafter owned by such Founder or Management Stockholder or grant a security
interest therein to secure indebtedness of such Founder or Management
Stockholder owing to a bank or other financial institution on terms and
conditions approved by the Board (excluding such Founder or Management
Stockholder and other members of the Board who are designees of the Founders and
Management Stockholders), PROVIDED, however, that any pledgee pursuant to this
subsection (c) shall acquire only a security interest in such
2
<PAGE>
Shares entitling such pledgee to (I) the proceeds from any sale of such Shares
made in compliance with the terms of this Agreement and (II) any proceeds of any
distribution to stockholders on account of the Shares in any liquidation as a
result of any bankruptcy proceeding or the winding up of affairs of the Company
and in no event shall such pledgee be entitled to receive title to such Shares
or any other rights incident thereto other than those specified above. The
pledge agreements or other related financing agreements of any Founder or
Management Stockholder shall be subject to and acknowledge the rights of the
Company and the other Stockholders set forth herein and shall acknowledge the
restrictions imposed on the pledgee's security interest pursuant to this Section
1.1(c), such acknowledgment being in form and substance reasonably satisfactory
to the Board.
1.2. TREATMENT OF CERTAIN BERGSTEIN FAMILY MEMBERS. Each of
Joel Bergstein, Michael Bergstein and Lindy Sobel Bergstein (collectively, the
"BERGSTEIN FAMILY MEMBERS") hereby acknowledges that all Shares 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 JED
and each such Person has as of the date hereof granted JED an irrevocable power
of attorney directing JED 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.
1.3. TREATMENT OF JED. Notwithstanding anything in this
Agreement to the contrary, Bergstein, together with Jordan Bergstein and
Elizabeth Heller, shall continue to own 100% of JED and shall not Transfer any
Shares in JED or any direct or indirect interest therein until such time as JED
no longer owns any Shares, except for any Transfer to or from any Bergstein
Family Member or Jordan Bergstein or Elizabeth Heller or any Transfer made for
estate-planning purposes pursuant to Section 1.1(a)(ii) or any Transfer of
shares of JED, in case of the death of a stockholder of JED, by will or by the
laws of intestate succession, to such stockholder's executors, administrators,
testamentary trustees, legatees or beneficiaries, all of whom shall be subject
to the restrictions set forth in this Section 1.3 and PROVIDED further that the
transferees of such Shares shall have complied with Section 12.4.
1.4. RIGHT OF FIRST REFUSAL. (a) If at any time after the 50%
Condition has been satisfied, any of the Founders or Management Stockholders
shall have received a BONA FIDE offer or offers from a third party or parties to
purchase any Shares, then prior to selling such Shares to such third party or
parties the relevant Founder or Management Stockholder shall deliver to the
Company and the Investor Stockholders a letter signed by the relevant Founder or
Management Stockholder setting forth in reasonable detail:
3
<PAGE>
(i) the name(s) of such third party or parties;
(ii) the purchase price per share of the Shares offered by
such third party or parties;
(iii) all material terms and conditions contained in the offer
of the third party or parties;
(iv) the relevant Founder or Management Stockholder's offer
(irrevocable by its terms for 30 days following receipt) to sell to the
Company all (but not less than all) of the Shares 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 the relevant Founder or
Management Stockholder 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) After the receipt of the Offer, the Company shall have a
30-day period in which to determine whether to purchase the Shares covered by
the Offer on the terms set forth therein (or assign the right to purchase such
Shares, or that portion of the right not being exercised by the Company, to the
Investor Stockholders or any Kelso Holder or THL Holder in accordance with
Section 1.4(c)).
(c) If the Company does not exercise its rights with respect
to all of the Shares covered by the Offer under Section 1.4(b), then the Company
shall, within five days following the date of the Offer, notify the Investor
Stockholders of such Offer and make available to each of them the right to
purchase all of the Shares covered by the Offer which are not being purchased by
the Company on a pro rata basis (based on their relative ownership of the
Company) or (II) such other portion of such Shares as the Investor Stockholders
may mutually agree upon. The Investor Stockholders shall have the right to
assign to any of the Kelso Holders or THL Holders all or any of their rights to
purchase Shares pursuant to this Section 1.4(c). Notwithstanding the foregoing,
in no event shall the Company, the Investor Stockholders or any Kelso Holder or
THL Holder be entitled to purchase any Shares pursuant to this Section 1.4
unless all of the Shares covered by the Offer are purchased. Any purchases made
by
4
<PAGE>
the Investor Stockholders or any Kelso Holder or THL Holder hereunder shall be
made in accordance with Section 1.4(b).
(d) If the Company (or the Investor Stockholders or any Kelso
Holder or THL Holder pursuant to Section 1.4(c)) fails to accept the Offer
within the 30-day period or fails to consummate the closing of the purchase of
all of the Shares covered by the Offer within the time period set forth therein,
then the relevant Founder or Management Stockholder shall have the right to sell
to the third party or parties identified in such Offer all (but not less than
all) of the Shares covered by the Offer, for a purchase price not less than the
purchase price contained in the Offer and on the other terms and conditions no
less favorable to the relevant Founder or Management Stockholder than those
contained in the Offer. If the relevant Founder or Management Stockholder has
not signed a binding purchase agreement (subject to customary closing
conditions) with such third party or parties within 45 days after 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) after the expiration of such 30-day period,
the Shares covered by such Offer may not thereafter be sold by the relevant
Founder or Management Stockholder unless the procedures set forth in this
Section 1.4 shall have again been complied with.
1.5. TAG-ALONG RIGHTS. If none of the Company, the Investor
Stockholders, the Kelso Holders or the THL Holders, either singly or in the
aggregate, shall have accepted the Offer pursuant to Section 1.4, and any of the
Founders or Management Stockholders shall have agreed to sell to a third party
or parties the Shares covered by the Offer, then such Founder or Management
Stockholder must offer each other Stockholder a PRO RATA right to participate in
such sale with respect to such Stockholder's Shares, for a purchase price per
Share equal to the purchase price per Share being paid for such Founder or
Management Stockholder's Shares and on other terms and conditions not less
favorable to such Stockholder than those applicable to such Founder or
Management Stockholder.
2. RESTRICTIONS ON TRANSFERS OF SHARES BY INVESTOR
STOCKHOLDERS. 2.1. RESTRICTIONS GENERALLY. (a) Prior to December 31, 2002, no
Shares or any interest therein now or hereafter owned by either Investor
Stockholder (or any Kelso Holder or THL Holder) may be Transferred without the
written consent of the other Investor Stockholder, and then subject to Sections
2.2 and 2.3, except for any (I) involuntary Transfer to a third party in
accordance with Section 4 ("Involuntary Transfers") or (II) Transfer from Kelso
to a Kelso Holder, from a Kelso Holder to Kelso or to another Kelso Holder, from
THL to a THL Holder, or from a THL Holder to THL or to another THL Holder,
provided that such Kelso Holder or THL Holder, as the case may be, agrees to be
bound by the terms of this Agreement pursuant to Section 12.4.
5
<PAGE>
Notwithstanding anything in this Agreement to the contrary, prior to the earlier
of the fifth anniversary of the Closing Date and an IPO, (I) no Shares may be
Transferred by KIA V or KEP V to any of their respective limited partners
without the prior consent of THL, and no Shares may be Transferred by THL Fund
IV or any of the THL Related Parties to any of their respective limited partners
without the prior consent of Kelso, and (II) no THL Individual or Kelso
Individual may pledge any Shares other than pursuant to Section 2.1(c) without
the consent of Kelso or THL, respectively.
(b) After December 31, 2002, each Investor Stockholder (and
any Kelso Holder or THL Holder) may sell any Shares held by it, PROVIDED that if
such sale is not pursuant to Section 2.1(a)(i) or (ii), such sale must be either
(I) made in compliance with the provisions of Section 2.2 ("Right of First
Offer") and Section 2.3 ("Tag-Along Rights"), (II) pursuant to Section 2.4
("Drag-Along Rights") or Section 5 ("Auction Sale Procedure"), or (III) pursuant
to a Registration effected in accordance with the Registration Rights Agreement.
(c) Notwithstanding anything in this Agreement to the
contrary, a Kelso Holder or THL Holder may pledge any or all Shares now or
hereafter owned by such Kelso Holder or THL Holder or grant a security interest
therein to secure indebtedness of such Kelso Holder or THL Holder owing to a
bank or other financial institution, PROVIDED, however, that any pledgee
pursuant to this subsection (c) shall acquire only a security interest in such
Shares entitling such pledgee to (I) the proceeds from any sale of such Shares
made in compliance with the terms of this Agreement and (II) any proceeds of any
distribution to stockholders on account of the Shares in any liquidation as a
result of any bankruptcy proceeding or the winding up of affairs of the Company
and in no event shall such pledgee be entitled to receive title to such Shares
or any other rights incident thereto other than those specified above. The
pledge agreements or other related financing agreements of any Kelso Holder or
THL Holder shall be subject to and acknowledge the rights of the Company and the
other Stockholders set forth herein and shall acknowledge the restrictions
imposed on the pledgee's security interest pursuant to this Section 2.1(c).
2.2. RIGHT OF FIRST OFFER. (a) PROCEDURE. If at any time after
the date hereof (I) either Investor Stockholder desires to sell any of the
Shares held by it (the "OFFERING INVESTOR STOCKHOLDER"), (II) such sale is
permitted under Section 2.1, (III) such sale is a sale which, pursuant to
Section 2.1, is subject to this Section 2.2, and (IV) the other Investor
Stockholder, the Founders or the Management Stockholders continue to own at
least 20% of the aggregate number of Shares owned by such Investor Stockholder,
the Founders or the Management Stockholders, as the case may be, on the Closing
Date (any and all parties meeting such 20% condition, an "ELIGIBLE
STOCKHOLDER"), then prior to selling such Shares, the Offering Investor
Stockholder
6
<PAGE>
shall deliver to each Eligible Stockholder a letter signed by it setting forth
the number of Shares the Offering Investor Stockholder desires to sell (the
"SALE NOTICE"). Within 30 days of receipt of the Sale Notice, the Eligible
Stockholders may make offers to purchase in the aggregate, all of the shares
covered by the Sale Notice, and (I) individually, that portion of such Shares
offered by the Offering Investor Stockholder equal to their PRO RATA interest in
the Company relative to each other (based on the percentage of outstanding
Shares owned by each of them on the date of the Sale Notice) or (II) such other
portion of such shares as the Eligible Stockholders collectively may agree upon,
by delivering written notice to the Offering Investor Stockholder setting forth:
(i) the number of Shares to be purchased and the prospective
purchase price per Share;
(ii) any other material terms and conditions to such purchase;
(iii) evidence reasonably satisfactory to such Offering
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) If, upon the expiration of 30 days following receipt by
the Eligible Stockholders of the Sale Notice, the Eligible Stockholders shall
not have made an offer to purchase all (but not less than all) of the Shares
covered by the Sale Notice, the Offering Investor Stockholder may sell the
Shares covered by the Sale Notice at a price per share and on other terms and
conditions not less favorable to the Offering Investor Stockholder than those
set forth in the Sale Notice, 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 Eligible
Stockholders shall have made an offer to purchase all of the Shares covered by
the Sale Notice, then the Offering Investor Stockholder may either (I) accept
such offer and the sale of such Shares 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
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written notice delivered to the Eligible Stockholders within 20 days of the
delivery to the Offering Investor Stockholder of such offer, in which case the
Offering Investor Stockholder shall have the right to sell all (but not less
than all) of the Shares 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 contained in the Eligible Stockholders' offer, PROVIDED
that the Offering Investor Stockholder and the purchasers execute a binding
purchase agreement (subject to customary closing conditions) within 120 days of
the Eligible Stockholders' 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 such
purchasers 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 covered by such Sale Notice may not thereafter be sold by the
Offering Investor Stockholder unless the procedures set forth in this Section
2.2 shall have again been complied with. Any offer by the Eligible Stockholders
pursuant to this Section 2.2(b) shall not preclude any of them from making
additional offers for such Shares outside of this Section 2.2, which offers may
be rejected in the Offering Investor Stockholder's sole discretion, or
participating in any auction relating to the sale of any such Shares.
(c) SALE OF ASSETS. The provisions of Sections 2.2(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.
2.3. TAG-ALONG RIGHTS. If the Eligible Stockholders shall not
have purchased, pursuant to Section 2.2(a), all of the Shares covered by the
Sale Notice, and the Offering Investor Stockholder shall have agreed to sell to
a third party or parties the Shares covered by the Sale Notice, and the Shares
proposed to be sold, together with all Shares previously sold by the Offering
Investor Stockholder, would represent more than 25% of the aggregate number of
Shares owned by the Offering Investor Stockholder on the Closing Date, then the
Offering Investor Stockholder must offer the other Stockholders a PRO RATA right
to participate in such sale with respect to the other Stockholders' Shares, for
a purchase price per Share equal to the purchase price per Share being paid for
the Offering Investor Stockholder's Shares and on other terms and conditions not
less favorable to the other Stockholders than those applicable to the Offering
Investor Stockholder.
2.4. DRAG-ALONG RIGHTS. (a) If either of the Investor
Stockholders proposes to sell to a third party or parties (a "PROPOSED
PURCHASER") Shares owned by such Investor Stockholder (other than a sale
pursuant to Section 2.1(a)(i) or (ii)) which, together with all Shares
previously sold by such Offering Investor Stockholder, would
8
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represent more than 25% of the aggregate number of Shares owned by such Offering
Investor Stockholder on the Closing Date, and (I) such sale is permitted by
Section 2.1, (II) the Offering Investor Stockholder has previously complied with
Section 2.2 with respect to such proposed sale, (III) if the Proposed Purchaser
proposes to sell 100% of the Proposed Purchaser's Shares, such sale meets the
THL Requirements, if applicable, and (IV) if the Proposed Purchaser proposes to
sell less than 100% of the Proposed Purchaser's Shares, the other Investor
Stockholder approves such sale (any proposed sale meeting all such conditions, a
"PROPOSED SALE"), then the Offering Investor Stockholder may provide each other
Stockholder written notice (a "DRAG-ALONG NOTICE") of such Proposed Sale and the
material terms thereof not less than 20 business days prior to the proposed
closing date of the Proposed Sale and each of the other Stockholders hereby
agrees to sell to such Proposed Purchaser that number of Shares equal to the
product of (I) the number of Shares then held by each such other Stockholder and
(II) a fraction, the numerator of which shall be the number of Shares which the
Offering Investor Stockholder (together with the Kelso Holders or the THL
Holders as applicable) proposes to sell in the Proposed Sale and the denominator
of which shall be the number of Shares then owned by the Offering Investor
Stockholder (together with the Kelso Holders or the THL Holders as applicable).
(b) Shares which are subject to a Drag-Along Notice will be
included in the Proposed Sale pursuant hereto and to any agreement with the
Proposed Purchaser relating thereto, on the same terms and subject to the same
conditions applicable to the Shares which the Offering Investor Stockholder
proposes to sell in the Proposed Sale. Such terms and conditions shall include,
without limitation, (I) the sale consideration (which shall be reduced by the
fees and expenses incurred by the Offering Investor Stockholder in connection
with the Proposed Sale); (II) the provision of information, representations,
warranties, covenants and requisite indemnifications, PROVIDED, HOWEVER, that
any representations and warranties relating specifically to any Stockholder
shall only be made by that Stockholder and any indemnification provided by the
Stockholders shall be on a several and ratable, not joint, basis based on the
number of Shares being sold by each Stockholder in the Proposed Sale; PROVIDED,
FURTHER, HOWEVER, that the form of consideration to be received by the Offering
Investor Stockholder (or any Kelso Holder or THL Holder as applicable) in
connection with the Proposed Sale may be different from that received by the
other Stockholders so long as the value of the consideration to be received by
the Offering Investor Stockholder (or any Kelso Holder or THL Holder as
applicable) is the same or less than that to be received by the other
Stockholders (as reasonably determined by the Board in good faith, excluding
members of the Board who are designees of the Offering Investor Stockholder). No
other Stockholders shall exercise any dissenter's rights with respect to the
consummation of any such Proposed Sale pursuant to this Section 2.4.
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<PAGE>
(c) Each other Stockholder will, if requested by the Offering
Investor Stockholder, execute and deliver a custody agreement and power of
attorney in form and substance reasonably satisfactory to the Offering Investor
Stockholder with respect to the Shares which are to be included in the Proposed
Sale pursuant to this Section 2.4. The custody agreement and power of attorney
will provide, among other things, that the other Stockholders will deliver to
and deposit in custody with the custodian and attorney-in-fact named therein a
certificate or certificates representing such Shares (duly endorsed in blank by
the registered owner or owners thereof or accompanied by duly endorsed stock
powers in blank) and irrevocably appoint said custodian and attorney-in-fact as
such other Stockholder's agent and attorney-in-fact with full power and
authority to act under a custody agreement and power of attorney on behalf of
such other Stockholder with respect to the matters specified therein.
(d) Each other Stockholder agrees to execute such other
agreements as the Offering Investor Stockholder may reasonably request in
connection with the consummation of a Proposed Sale and Drag-Along Notice and
the transactions contemplated thereby, including, without limitation, any
purchase agreement, proxies, written consents in lieu of meetings or waiver of
appraisal rights.
3. MANAGEMENT STOCKHOLDERS. 3.1. RIGHT OF THE COMPANY TO
PURCHASE. Subject to all subsections of this Section 3, 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:
(a) at the Fair Market Value of the Shares 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
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 upon or after reaching the
age of 65 ("RETIREMENT") ;
(b) at the lesser of the Fair Market Value and the Carrying
Value of the Shares 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 to be purchased, in the sole discretion of the Board (excluding
interested Board members), if such Management Stockholder's employment
with the Company or
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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 3.1.
3.2. NOTICE TO MANAGEMENT STOCKHOLDERS. If the Company desires
to purchase Shares from a Management Stockholder pursuant to Section 3.1, 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.
3.3. PAYMENT. If at any time the Company purchases any Shares
pursuant to this Agreement, then within 30 days after the date that the Company
sends the notice to the Management Stockholder pursuant to Section 3.2, the
Company must pay the purchase price determined under this Agreement for the
Shares 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 3.7, any portion thereof, the seller shall deliver the
certificates representing the number of Shares 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
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.
3.4. APPRAISAL. The Company shall engage, from time to time at
the discretion of the Board, but not less often than within 90 days after every
fiscal year, an independent valuation consultant or appraiser of recognized
national standing reasonably satisfactory to the Investor Stockholders (the
"APPRAISER") to appraise the Fair Market Value of the Shares as of the last day
of the calendar year then most recently ended or, at the request of the Board,
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 Appraiser shall (A) exclude any premiums for control or
discounts for minority interests or restrictions on transfer; (B) appraise the
Shares on a fully-diluted basis, PROVIDED that it shall use its judgment as to
the extent to which any "out of the money" Share equivalents should be included;
and (C) value the Non-Voting Common Stock and Preferred Stock on an as-converted
basis. The Company shall bear the fees and expenses of each Appraisal. Promptly
after receipt of each Appraisal, the Company shall deliver to each Stockholder a
copy of the Appraisal.
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3.5. FAIR MARKET VALUE. The "FAIR MARKET VALUE" of any Share
being purchased by or sold to the Company (or to Kelso, any Kelso Holder, THL or
any THL Holder if the right to purchase has been assigned thereto pursuant to
this Section 3) shall be derived from the most recent Appraisal pursuant to
Section 3.4, unless the Board in its sole discretion decides to obtain a more
recent Appraisal.
3.6. ACKNOWLEDGMENT OF STATUS. Each of Johnson and Thomas
hereby acknowledges that, except with respect to the Shares distributed to him
upon the dissolution of MJD Partners (with respect to which he shall be deemed a
Founder), he shall be deemed a "Management Stockholder" for all purposes of this
Agreement with respect to any Shares or hereafter owned directly by him.
3.7. PROHIBITED PURCHASES. Notwithstanding anything to the
contrary herein, the Company shall not be permitted to purchase any Shares under
this Section 3 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) an event of default has occurred (or, with notice
or the lapse of time or both, would occur) under any Financing Document and is
(or would be) continuing, (C) the purchase of such Shares would, or in the
reasonable opinion of the Board (excluding such Management Stockholder and other
members of the Board who are designees of the Management Stockholders) 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 would, in
the reasonable opinion of the Board (excluding such Management Stockholder and
other members of the Board who are designees of the Management Stockholders), 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 that the Company
has the right 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 up
to the Maximum Amount (and shall not be required to purchase more than the
Maximum Amount) in such amounts as the Board (excluding such Management
Stockholder and other members of the Board who are designees of the Management
Stockholders) shall in good faith determine. 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 3.7, the Company
shall have the option to either: (I) make such payment at the earliest
practicable date permitted under this Section 3.7 and any such payment shall
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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, PROVIDED that all
payments of interest accrued hereunder shall be paid only at the date of payment
by the Company for the Shares being purchased, or (II) pay the purchase price
for such Shares with a subordinated note which is fully subordinated in right of
payment and exercise of remedies to the lenders' rights under the Financing
Documents and the maturity date of which is 30 days after the latest maturity
date on any debt of the Company which is outstanding (or reasonably expected to
become outstanding) as of the date such subordinated note is issued.
4. INVOLUNTARY TRANSFERS. Any transfer of title or beneficial
ownership of Shares 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 4 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 pursuant to this Section 4 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 4. Upon the Involuntary Transfer of
any Shares, such Stockholder shall promptly (but in no event later than five
business days after such Involuntary Transfer) furnish written notice to the
Company and the Investor Stockholders 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 acquired by the Involuntary Transferee for a purchase price
equal to the lesser of (A) the Fair Market Value of such Shares and (B) the
amount of the indebtedness or other liability that gave rise to the Involuntary
Transfer plus the excess, if any, of the Carrying Value of such Shares over the
amount of such indebtedness or other liability that gave rise to the Involuntary
Transfer. Notwithstanding the provisions of Section 3, for purposes of this
Section 4, the Fair Market Value of any Share 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, unless the Board in its sole discretion
decides to obtain a more recent Appraisal.
5. AUCTION SALE PROCEDURE. 5.1. GENERAL. At any time after the
second anniversary of the Closing Date, either Investor Stockholder shall be
entitled to initiate the following procedure for the sale of the Company,
PROVIDED that such Investor Stockholder together with the Kelso Holders and the
THL Holders, as applicable,
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continues to own, in the aggregate, at least 25% as many Shares as owned by such
Investor Stockholder on the Closing Date and FURTHER PROVIDED that such
procedure complies with the THL Requirements. The sale procedure (the "AUCTION
SALE PROCEDURE") set forth in this Section 5 shall be initiated by the Investor
Stockholders authorized pursuant to this Section 5.1, in any 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 5, "SUPERVISING STOCKHOLDER" shall mean
both Investor Stockholders acting together, and "REMAINING STOCKHOLDERS" shall
mean all of the other Stockholders. Notwithstanding the foregoing, the Investor
Stockholders shall jointly be entitled to initiate the Auction Sale Procedure at
any time.
5.2. RETENTION OF INVESTMENT BANK. Within 45 days after the
initiation of the Auction Sale Procedure, the Supervising Stockholder 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.
All fees and expenses of the Investment Bank shall be borne by the Company.
5.3. 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 Shares. 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.
5.4. AUCTION PROCEDURES. If requested by the Supervising
Stockholder, the Investment Bank shall develop procedures for conducting the
auction of the Company, such procedures to be reasonably acceptable to the
Supervising Stockholder, 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.
5.5. SELECTION OF BID. The Confidential Memorandum and auction
procedures shall solicit prospective purchasers of all of the Shares. Based on
the advice of the Investment Bank, the Supervising Stockholder shall in good
faith select the best bid or bids.
5.6. NEGOTIATION OF SALE AGREEMENT. The Supervising
Stockholder and its counsel shall be entitled to negotiate the sale agreement or
agreements and any ancillary agreements on behalf of the Company with the
prospective purchaser or purchasers. The Remaining Stockholders and their
counsel shall be entitled to
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participate in such negotiations, and the Supervising Stockholder 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 shall not agree to any term in any sale agreement that
is more favorable to the Supervising Stockholder or its Affiliates, PROVIDED,
HOWEVER, that the form of consideration to be received by the Investor
Stockholders or the Kelso Holders or the THL Holders in connection with the
Auction may be different from that received by the other Stockholders so long as
the value of the consideration to be received by the Investor Stockholders or
the Kelso Holders or the THL Holders is the same or less than that to be
received by the other Stockholders (as reasonably determined by the Board in
good faith, excluding members of the Board who are designees of the Investor
Stockholders).
5.7. RIGHT OF REMAINING STOCKHOLDERS TO BID. No Stockholder
may participate as a bidder in the Auction Sale Procedure.
5.8. COOPERATION. Each Stockholder shall cooperate in all
respects in order to carry out the intent and accomplish the purposes of this
Section 5. No Stockholder shall exercise any dissenter's rights with respect to
the consummation of any such Auction pursuant to this Section 5. The provisions
of Section 14.4 ("Further Assurances") are specifically incorporated herein by
reference and the Stockholders' obligations thereunder, insofar as they relate
to this Section 5, shall include, without limitation, the obligation to deliver
stock certificates representing Shares, 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 5.6. Each Stockholder agrees that its failure to strictly comply with
the provisions of this Section 5 and Section 14.4, insofar as it relates to this
Section 5, shall be deemed a material breach of this Agreement and shall entitle
the aggrieved Stockholders 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
Stockholders may have.
6. ISSUANCE OF ADDITIONAL EQUITY SECURITIES. 6.1. PREEMPTIVE
RIGHTS OF THE STOCKHOLDERS. 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
Stockholders shall have the right, exercisable within 20 days after the Company
has given notice to the Stockholders 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 6.2 and 6.3; PROVIDED that the Founders shall only
have such right for any proposed sale or
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issuance of, or the proposed granting by the Company of, any equity securities
of the Company to any Person (other than Excluded Shares) at less than fair
market value.
6.2. INVESTMENTS. Subject to Section 6.3, if the Company
proposes to sell, issue or grant any equity securities of the Company as
provided in Section 6.1, then each Stockholder, in such Stockholder's sole
discretion, shall be entitled to make one or more purchases of equity securities
for a purchase price per share as set forth in the Company's notice pursuant to
Section 6.1. The notice referred to in Section 6.1 shall state the number of
equity securities to be offered to each Stockholder, the aggregate consideration
to be paid for such equity securities by each Stockholder 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 Stockholder stock certificates representing that number of fully paid and
nonassessable Shares (or executed agreements representing equity securities
other than Shares) that each such Stockholder has agreed to purchase pursuant to
this Section 6.2 and each such Stockholder shall pay to the Company by wire
transfer of immediately available funds the aggregate consideration for such
equity securities.
6.3. PARTICIPATION BY THE STOCKHOLDERS. (a) Subject to all
subsections of this Section 6.3, (I) each Stockholder shall be entitled to
purchase that portion of the equity securities covered by the notice referred to
in Section 6.1 equal to such Stockholder's PRO RATA interest in the Company
(based on the percentage of outstanding Shares owned by each Stockholder on the
date of such notice), and (II) if any Stockholder does not exercise such right
to purchase such Stockholder's PRO RATA portion of all of the equity securities
that the Company proposes to issue and sell pursuant to Section 6.1, then each
other Stockholder who elected to purchase pursuant to this Section 6.3(a) shall
have the right to purchase such Stockholder's respective PRO RATA portion of
such equity securities not elected to be so purchased by such Stockholder that
the Company proposes to issue and sell.
(b) Notwithstanding subsection (a) of this Section 6.3, the
Investor Stockholders may allocate any equity securities proposed to be sold to
them pursuant to Section 6.2 between themselves in whatever manner they choose
and, in any event, either Investor Stockholder may purchase any of the equity
securities not purchased by the other Investor Stockholder before the
application of Section 6.3(a)(ii).
(c) Any purchase by any Founder or Management Stockholder of
any Shares pursuant to this Section 6 may only be financed by personal funds or
borrowings made directly by such Founder or Management Stockholder, PROVIDED
that such financing arrangements must be authorized by the prior written
approval (not to be
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unreasonably withheld) of the Board (excluding interested Board members) and no
funds may be provided by any third party investor.
7. CORPORATE GOVERNANCE. 7.1. ELECTION OF DIRECTORS. (a) Each
Stockholder shall vote all of such Stockholder's voting securities of the
Company over which such Stockholder has voting control and shall take all other
reasonably necessary or desirable actions within such Stockholder's control
(whether in such Stockholder's capacity as a stockholder, director, member of a
board committee or officer of the Company or otherwise, and including, without
limitation, attendance at meetings in person or by proxy for purposes of
obtaining a quorum, execution of written consents in lieu of meetings and
approval of amendments and/or restatements of the Company's Certificate of
Incorporation or bylaws), and the Company shall take all reasonably necessary
and desirable actions within its control (including, without limitation, calling
special board, stockholder meetings and approval of amendments and/or
restatements of the Company's Certificate of Incorporation or bylaws), so that:
(i) the authorized number of directors on the Board shall be
seven;
(ii) two representatives designated for nomination by Kelso
shall be elected to the Board;
(iii) two representatives designated for nomination by THL
shall be elected to the Board;
(iv) Daniel G. Bergstein, Eugene B. Johnson and Jack H.
Thomas;
PROVIDED HOWEVER, that after the conversion of the Preferred Stock and the
Non-Voting Common Stock, in each case into Common Stock after receipt of all
regulatory approvals for such conversion (the "CONVERSION DATE"), the three
representatives specified in Section 7.1(a)(iv) shall be designated for
nomination jointly by Kelso and THL;
(v) the Chief Executive Officer of the Company shall serve as
the Board's Chairman;
(vi) any committees of the Board or the board of directors of
any of the Company's subsidiaries shall be created only upon the
approval of the Board;
(vii) the board of directors of each of the Company's
subsidiaries shall be constituted consistently with Sections
7(a)(i)-(iv);
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(viii) the removal from the Board or the board of directors of
any of the Company's subsidiaries (with or without cause) of any
representative designated under this Section 7.1(a) by Kelso or THL
shall be at the written request of Kelso or THL, as the case may be,
or, after the Conversion Date, in the case of a representative
designated under Section 7.1(a)(iv), Kelso and THL, but only upon such
written request and under no other circumstances;
(ix) in the event that any representative designated under
this Section 7.1(a) by Kelso or THL or, after the Conversion Date, by
Kelso and THL jointly for any reason ceases to serve as a member of the
Board or the board of directors of any of the Company's subsidiaries
during his or her term of office, the resulting vacancy on the Board or
such subsidiary board shall only be filled by a representative
designated by Kelso, THL or, after the Conversion Date, by Kelso and
THL jointly, as applicable.
(b) If Kelso or THL or Kelso and THL jointly fail to designate
a representative to fill a directorship pursuant to the terms of this Section
7.1, the election of a person to such directorship shall be accomplished in
accordance with the Company's bylaws and applicable law.
(c) Upon the Conversion Date, in order to secure the
obligation of each Founder and Management Stockholder to vote Shares and other
voting securities of the Company held by such Founder or Management Stockholder
in accordance with the provisions of this Section 7.1, each Founder and
Management Stockholder shall appoint each of the Investor Stockholders, and both
of them, as the true and lawful proxy and attorney-in-fact of such Founder or
Management Stockholder, with full power of substitution, to vote all of such
Person's Shares and other voting securities of the Company for the election and
removal of directors and all such other matters as expressly provided for in
this Section 7.1. Each of the Investor Stockholders may exercise the proxy to be
granted to it at any time any Founder or Management Stockholder fails to comply
with the provisions of this Section 7.1. The proxies and powers to be granted by
each Founder and Management Stockholder pursuant to this paragraph (c) are
coupled with an interest and are given to secure the performance of their
obligations under this Agreement. Such proxies and powers will be irrevocable
until the earlier of the termination of this Agreement or this Section 7
pursuant to Section 12.3(b) and will survive the death, incompetency, disability
or dissolution, as applicable, of each Founder or Management Stockholder and the
holders of each of such Founder's or Management Stockholder's respective Shares.
7.2. FIVE YEAR PLAN AND ANNUAL BUDGET. Attached hereto as
Exhibit A are the capital and operating budgets, together with the EBITDA
performance targets,
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for the Company and its subsidiaries' competitive and rural local exchange
carrier business for the five year period ending December 31, 2004 (the "FIVE
YEAR PLAN"). The Company 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 BUDGET" for the Company and its
subsidiaries. Attached hereto as Exhibit B is the Annual Budget for the 2000
Fiscal Year.
7.3. RECORDS AND REPORTS, ETC. (a) The Company shall furnish
or cause to be furnished to the Investor Stockholders and each of the Founders
until such Founder shall have Transferred 50% or more of the number of Shares
held by such Founder on the Closing Date:
(i) within 120 days following 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 any of the Founders may reasonably request.
(b) The Investor Stockholders and each of the Founders, until
such Founder shall have Transferred 50% or more of the number of Shares held by
such Founder on the Closing Date, 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:
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(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.
7.4. 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 after the Closing Date, 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 THL 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 8, 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 and the power to administer the Stock Option Plans,
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 THL 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 8 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.
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7.5. DIRECTORS' AND OFFICERS' INSURANCE. The Company shall
maintain directors' and officers' liability insurance in an amount and with
other terms approved by the Board.
8. ACTIONS REQUIRING APPROVAL OF THE INVESTOR STOCKHOLDERS.
8.1. GENERAL. Prior to the Conversion Date, Kelso shall have only those approval
rights it had under Section 10.1 of the Amended and Restated Stockholders'
Agreement, dated as of July 21, 1999, by and among the Company, KIA V, KEP V and
the other stockholders party thereto (which agreement was terminated on the
Closing Date). For ease of reference, such rights are listed on Annex A hereto.
On and after the Conversion Date, as long as an Investor Stockholder owns at
least 10% of the issued and outstanding Shares owned by such Investor
Stockholder as of the Closing Date, no Stockholder shall cause the Company or
any of its subsidiaries to take, and the Company shall not take and shall cause
each of its subsidiaries not to take, any of the following actions without the
prior written approval of each of the Investor Stockholders who still own 10% of
the Shares owned by such Investor Stockholder as of the Closing Date 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 than issuances with respect to those
options and warrants outstanding as of the date hereof or issuable
under the Stock Option Plans as in effect on date hereof), 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
Sections 2, 3 and 4 (other than pursuant to the Stock Redemption
Agreement);
(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), (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) or (iii) any acquisition by the Company or any of its
subsidiaries of any Person for which the price paid by the Company or
any such subsidiary exceeds $5,000,000;
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(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 IPO;
(f) any liquidation or dissolution of the Company or any of
its subsidiaries;
(g) entry into any business not substantially similar or
reasonably related to the business of the Company and its subsidiaries
as of the date hereof;
(h) termination of the Company's Chief Executive Officer or
any employee who reports directly to the Company's Chief Executive
Officer (including, for the avoidance of doubt, Jack H. Thomas, Eugene
B. Johnson, John P. Duda and Walter E. Leach, Jr.) or termination of
Fairpoint Communication Corp.'s Chief Executive Officer or any employee
who reports directly to Fairpoint Communication Corp.'s Chief Executive
Officer;
(i) establishment of or material change to any incentive or
bonus program of the Company or any of its subsidiaries, including the
Stock Option Plans;
(j) any approval of or material change to the Annual Budget;
(k) incurrence or guarantee by the Company or any of its
subsidiaries of indebtedness in excess of $5 million in the aggregate;
(l) declaration or payment of dividends or other distributions
in respect of the capital stock of the Company or any of its
subsidiaries;
(m) enter into any transaction or modify any existing
arrangement between the Company or any of its subsidiaries, on the one
hand, and any Founder or any of their respective Affiliates, on the
other hand; or
(n) selection or replacement of the Company's and its
subsidiaries' independent public accountants;
PROVIDED, HOWEVER, that any transactions that would otherwise be permitted or
required by Section 2.3 ("Tag-Along Rights"), Section 2.4 ("Drag-Along Rights")
or Section 5
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("Auction Sale Procedure") will not be subject to the approval requirements of
this Section 8.1.
9. 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 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
COMPLIANCE WITH THE ACT, SUCH LAWS AND THE
STOCKHOLDERS' AGREEMENT OF THE ISSUER, DATED AS OF
JANUARY [__], 2000 (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."
(c) "THE ISSUER WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER
WHO SO REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF
EACH CLASS OR SERIES OF SHARES AUTHORIZED TO BE ISSUED AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS."
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In addition, certificates representing Shares 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, the certificate representing the
registered shares shall be replaced, at the expense of the Company, with
certificates not bearing the legends required by this Section 9.
10. 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, including, but not
limited to, arrangements or agreements with respect to the acquisition,
disposition or voting of Shares or any interest therein (whether or not such
arrangements or agreements are with the Company or any Investor Stockholder,
Founder, Management Stockholder or holder of Shares that is not party to this
Agreement), except for (A) the Stock Purchase Agreement and (B) the Registration
Rights Agreement.
11. 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 or holds
stock options exercisable into Shares shall, as a condition precedent to the
acquisition of such Shares 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 B attached
hereto and deliver such Agreement and Spousal Waiver, if applicable, to the
Company at its address specified in Section 14.8. Upon such execution and
delivery, such employee shall be a Management Stockholder for all purposes of
this Agreement.
12. PARTIES. 12.1. ASSIGNMENT BY THE COMPANY. The Company
shall have the right to assign to the Investor Stockholders all or any portion
of its rights and obligations under Sections 2, 3 and 4, PROVIDED that any such
assignment or assumption is accepted by the Investor Stockholders. If the
Company has not exercised its right to purchase Shares pursuant to any such
Section within 15 days of receipt by the Company of the letter, notice or other
occurrence giving rise to such right, then the Investor Stockholders shall have
the right to require the Company to assign such right. The Investor Stockholders
shall have the right to assign to one or more Kelso Holders or THL Holders all
or any of their rights to purchase Shares pursuant to this Section 12.1,
PROVIDED that any such Kelso Holder or THL Holder becomes a party to this
Agreement
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pursuant to a joinder agreement in form and substance satisfactory to the
Company and the Investor Stockholders and otherwise complies with Section 12.4.
12.2. 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 any Founder 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 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 12.4 ("Agreements to Be Bound").
12.3. TERMINATION. (a) Any party to, or Person who is subject
to, this Agreement which ceases to own any Shares 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 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, such Person shall
be obligated to transfer such Shares back to such original Stockholder and such
original Stockholder shall thereupon be subject to this Agreement again.
(b) All rights and obligations pursuant to Section 1
("Restrictions on Transfers of Shares by Founders or Management Stockholders"),
Section 2 ("Restrictions on Transfers of Shares by Investor Stockholders"),
Section 3 ("Management Stockholders"), Section 4 ("Involuntary Transfers"),
Section 5 ("Auction Sale Procedure"), Section 6 ("Issuance of Additional Equity
Securities"), Section 7 ("Corporate Governance"), Section 8 ("Actions Requiring
Approval of the Investor Stockholders"), Section 10 ("Absence of Other
Arrangements"), Section 11 ("New Management Stockholders"), Section 12.4
("Agreements to Be Bound") and Section 14.2 ("Non-Competition Agreement") shall
terminate upon an IPO. In the event that an Investor Stockholder ceases to own
at least 10% of the Shares owned by it on the Closing Date, all rights of such
Investor Stockholder pursuant to Section 2.4 ("Drag-Along Rights"), Section 7
("Corporate Governance") and Section 14.2 ("Non-Competition Agreement") shall
terminate.
12.4. 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), such Stockholder shall cause the transferee of such
Shares to execute the
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Spousal Waiver in the form attached hereto as Exhibit B, if such transferee is
an individual who resides in a state with a community property system, and (B)
the transferee of such Shares 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 Investor Stockholder, to the other Investor Stockholder and the
Company, (II) in the case of a Transfer by a Founder, to the Investor
Stockholders and the Company, and (III) in the case of a Transfer by a
Management Stockholder, to the Investor Stockholders and the Company. Upon the
execution of the Spousal Waiver and the instrument of assignment and assumption
by such transferee, such transferee shall be deemed to be the relevant
Stockholder, for all purposes of this Agreement, including, in the case of a
Transfer by a Management Stockholder, the provisions of Section 3.
12.5. THL RELATED PARTIES, THL HOLDERS, KELSO HOLDERS. (a) To
facilitate the arrangements, understandings and agreements contemplated by this
Agreement, each THL Related Party and THL Holder (and its successors and
assigns) hereby irrevocably consents to the appointment of, and does hereby
appoint and empower, THL Equity Advisors IV, LLC (and THL Equity Advisors IV,
LLC does hereby accept such appointment) as the sole and exclusive
representative (the "THL REPRESENTATIVE") of the THL Related Parties and THL
Holders (and their successors and assigns) to make all decisions and
determinations on behalf of them (and their successors and assigns) that the THL
Representative may deem necessary or appropriate in connection with this
Agreement. All decisions of the THL Representative shall be final and binding on
all of the THL Related Parties and THL Holders (and their successors and
assigns). The parties to this Agreement other than THL (and their successors and
assigns) shall be entitled to rely upon, without independent investigation, any
decision of the THL Representative and shall be fully protected in connection
with any action or inaction taken or omitted to be taken in reliance thereon.
(b) To facilitate the arrangements, understandings and
agreements contemplated by this Agreement, each Kelso Holder (and its successors
and assigns) hereby irrevocably consents to the appointment of, and does hereby
appoint and empower, Kelso & Company, L.P. (and Kelso & Company, L.P. does
hereby accept such appointment) as the sole and exclusive representative (the
"KELSO REPRESENTATIVE") of the Kelso Holders (and their successors and assigns)
to make all decisions and determinations on behalf of them (and their successors
and assigns) that the Kelso Representative may deem necessary or appropriate in
connection with this Agreement. All decisions of the Kelso Representative shall
be final and binding on all of the Kelso Holders (and their successors and
assigns). The parties to this Agreement other than Kelso (and their successors
and assigns) shall be entitled to rely upon, without independent investigation,
any decision of the Kelso Representative and shall be
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<PAGE>
fully protected in connection with any action or inaction taken or omitted to be
taken in reliance thereon.
13. 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, including the spouse, parents and children
of natural persons, general partners of a partnership and managing members of a
limited liability company.
"BOARD": The Board of Directors of the Company.
"CARRYING VALUE": With respect to any Share owned by any
Management Stockholder as of the Closing Date, "Carrying Value" shall mean
$262.33. With respect to any Share acquired by any Management Stockholder after
the Closing Date, Carrying Value shall mean the price paid for such Share by the
relevant Management Stockholder.
"CAUSE": The meaning as set forth in the employment agreement
between the Company and such Management Stockholder, or, if such Management
Stockholder is not a party to an employment agreement, a termination of such
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 of the
transactions contemplated by the Stock Purchase Agreement occurs.
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<PAGE>
"COMMON STOCK": The Company's Class A Voting common stock, par
value $.01 per share.
"DISABILITY": With respect to a Management Stockholder, the
term "Disability" shall have the meaning set forth in the employment agreement
between the Company and such Management Stockholder, or, if such Management
Stockholder is not a party to an employment agreement, 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 despite reasonable
accommodations made by the Company 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 for "Disability"
shall be deemed to be the last day of the aforementioned 90-day period.
"EXCLUDED SHARES": Any Shares issued or issuable (I) in
connection with an IPO or public offering of debt securities by the Company,
(II) to any employee of the Company or any of its subsidiaries in connection
with the Stock Option Plans or any other employee incentive or bonus program
duly authorized pursuant to this Agreement and by the Board or (iii) upon
exercise of any warrants to purchase Common Stock which are outstanding as of
the date hereof.
"FINANCIAL ADVISORY AGREEMENTS": The Amended and Restated
Financial Advisory Agreement, dated as of the Closing Date, as the same shall be
amended from time to time, between the Company and Kelso & Company, L.P. and the
Management Services Agreement, dated as of the Closing Date, as the same shall
be amended from time to time, between the Company and THL Equity Advisors IV,
LLC.
"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.
"GOOD REASON": The meaning as set forth in the employment
agreement between the Company and such Management Stockholder, or, if such
Management Stockholder is not a party to an employment agreement, 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:
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(i) without the Management Stockholder's prior written
consent, a 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
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) Shares which are sold for an aggregate price of at
least $150 million or (II) Shares 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 HOLDER": (A) any general or limited partner of the
Kelso Entities (a "KELSO PARTNER"), and any corporation, partnership, or other
entity which is an Affiliate of the Kelso Entities or any Kelso Partner
(collectively, the "KELSO AFFILIATES"), (B) any managing director, general
partner, director, limited partner, officer or employee of the Kelso Entities or
a Kelso Affiliate, or the heirs, executors, administrators, testamentary
trustees, lifetime trustees, legatees or beneficiaries of any of the foregoing
persons referred to in this clause (B) (collectively, "KELSO ASSOCIATES"), (C) a
charitable institution as defined in Section 501(c) of the Internal Revenue Code
of 1986, as amended, which receives a bona fide gift by a Kelso Individual of
Shares, (D) a bank, financial institution or other lender which receives a bona
fide pledge by a Kelso Individual of Shares, (E) any trust, the beneficiaries of
which, or any corporation, limited liability company or partnership, the
stockholders, members or general or limited partners of which include only the
Kelso Entities, Kelso Affiliates, Kelso Associates, their spouses or their
lineal descendants, and (F) any of
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the individuals or entities set forth on Schedule C hereto. "KELSO ENTITIES"
shall mean Kelso & Company, L.P. and its affiliated entities. "KELSO INDIVIDUAL"
shall mean any individual set forth on Schedule C hereto and any employee of
Kelso & Company, L.P..
"MJD PARTNERS": MJD Partners, L.P., a Delaware limited
partnership.
"NON-VOTING COMMON STOCK": The Company's Class B Non-Voting
common stock, par value $.01 per share.
"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.
"PREFERRED STOCK": The Company's Non-Voting Convertible Series
D Preferred Stock, par value $0.01 per share.
"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, the Investor Stockholders, the Founders and the
Management Stockholders.
"SHARES": Prior to the Conversion Date, shares of Common
Stock, Non- Voting Common Stock and Preferred Stock and after the Conversion
Date, shares of Common Stock. For purposes of any calculations hereunder, shares
of Non-Voting Common and Preferred Stock shall be calculated on an as-converted
basis.
"STOCK OPTION PLANS": The MJD Communications, Inc. 1995 and
1998 Stock Incentive Plans, as each may be amended from time to time, and any
other equity incentive plan of the Company.
"STOCK PURCHASE AGREEMENT": The Stock Purchase Agreement,
dated as of January 3, 2000, as the same shall be amended from time to time,
among the Company, THL and Kelso.
"THL HOLDER": (A) any general or limited partner of the THL
Entities (a "THL PARTNER"), and any corporation, partnership, or other entity
which is an Affiliate of the THL Entities, any THL Partner or Putnam
Investments, Inc. or any corporation,
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<PAGE>
partnership or other entity controlled by Putnam Investments, Inc.
(collectively, the "THL AFFILIATES"), (B) any managing director, general
partner, director, limited partner, officer or employee of the THL Entities or a
THL Affiliate, or the heirs, executors, administrators, testamentary trustees,
lifetime trustees, legatees or beneficiaries of any of the foregoing persons
referred to in this clause (B) (collectively, "THL ASSOCIATES"), (C) a
charitable institution as defined in Section 501(c) of the Internal Revenue Code
of 1986, as amended, which receives a bona fide gift by a THL Individual of
Shares, (D) a bank, financial institution or other lender which receives a bona
fide pledge by a THL Individual of Shares, (E) any trust, the beneficiaries of
which, or any corporation, limited liability company or partnership, the
stockholders, members or general or limited partners of which include only the
THL Entities, THL Affiliates, THL Associates, their spouses or their lineal
descendants, and (F) any of the individuals or entities set forth on Schedule A
hereto. "THL ENTITIES" shall mean Thomas H. Lee Partners, L.P. and its
affiliated entities. "THL INDIVIDUAL" shall mean each THL Related Party other
than Thomas H. Lee Foreign Fund IV, L.P. and Thomas H. Lee Foreign Fund IV-B,
L.P.
[CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED WITH THE COMMISSION]
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"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.
14. MISCELLANEOUS.
14.1. RECAPITALIZATIONS, EXCHANGES, ETC. AFFECTING THE SHARES.
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 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 the
Shares, by reason of any stock dividend, split, reverse split, combination,
recapitalization, reclassification, merger, consolidation or otherwise.
14.2. 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 purchase by THL of certain of the Shares
of Eugene B. Johnson, Jack H. Thomas, John P. Duda and Walter E. Leach, Jr.
pursuant to the Stock Purchase Agreement, each of Eugene B. Johnson, Jack H.
Thomas, John P. Duda and Walter E. Leach, Jr. agrees that from the date of the
termination of his 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.
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14.3. 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.
14.4. 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.
14.5. AMENDMENT AND MODIFICATION. This Agreement may be
amended, modified or supplemented with the written consent of both Investor
Stockholders, PROVIDED HOWEVER, that (A) if such amendment, modification or
supplement would have an effect that uniquely impacts the economic or other
rights of the Founders as a class of holders of Shares, then the consent of a
majority in number of the Founders will also be required for such amendment,
modification or supplement and (B) if such amendment, modification or supplement
could reasonably be expected to adversely affect the Management Stockholders,
then the consent of a majority in interest of the Management Stockholders (based
on the number of Shares owned by each Management Stockholder at the time of such
amendment, modification or supplement) will also be required for such amendment,
modification or supplement.
14.6. 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.
14.7. 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.
14.8. 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:
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(i) If to the Company, to it at:
MJD Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Fax: (704) 344-8121
Attention: Mr. Walter E. Leach, Jr.
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Fax: (212) 319-4090
Attention: Neil A. Torpey, Esq.
and a copy to THL at its address set forth in (ii) below and a
copy to Kelso at its address set forth in (iii) below:
(ii) If to THL, to it at: Thomas H. Lee Partners, L.P. 75 State
Street Boston, Massachusetts 02109 Fax: (617) 227-3514
Attention: Anthony J. DiNovi
Kent R. Weldon
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Fax: (312) 861-2200
Attention: William S. Kirsch, P.C.
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(iii) If to Kelso, to it at:
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Attention: James J. Connors, II, Esq.
Fax: (212) 223-2379
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Margaret A. Davenport, Esq.
Fax: (212) 909-6836
(iv) If to JED, a Bergstein Family Member, Jordan Bergstein or Elizabeth
Heller, to JED, such Bergstein Family Member, Jordan Bergstein or
Elizabeth Heller c/o Bergstein at his address set forth in (v) below.
(v) If to Bergstein, to him at:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Fax: (212) 319-4090
Attention: Daniel G. Bergstein
(vi) If to Meyer Haberman, to him at:
Interquest, Inc.
599 Lexington Avenue
New York, New York
Fax: (212) 703-0596
Attention: Meyer Haberman
(vii) If to a Management Stockholder, to him or her, as listed below his or
her name on the signature pages hereto.
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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.
14.9. 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.
14.10. INJUNCTIVE RELIEF. The Shares 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 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.
14.11. 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,
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.
14.12. TRANSFER OF SHARES FROM MJD PARTNERS. The Founders
(other than the Bergstein Family Members) have caused MJD Partners to transfer
free and clear of any lien, claim or encumbrance all of the Shares held by MJD
Partners to such Founders in proportion to the ownership interests of each of
such Founders in MJD Partners. If the transfer of such Shares, or the
dissolution or winding up of MJD Partners has or will result in or give rise to
any lien, claim or encumbrance on any Shares by any creditor of MJD Partners or
otherwise, the Founders shall take all
36
<PAGE>
actions necessary to remove or satisfy such lien, claim or encumbrance in order
to hold such Shares free and clear of any such lien, claim or encumbrance.
37
<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: /s/ WALTER E. LEACH, JR.
---------------------------------
Name:
Title:
KELSO INVESTMENT ASSOCIATES V, L.P.
By: Kelso Partners V, L.P.,
its general partner
By: /s/ GEORGE E. MATELICH
---------------------------------
Name: George E. Matelich
Title: General Partner
KELSO EQUITY PARTNERS V, L.P.
By: /s/ GEORGE E. MATELICH
---------------------------------
Name: George E. Matelich
Title: General Partner
THOMAS H. LEE EQUITY FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ ANTHONY J. DINOVI
---------------------------------
Name:
Title:
[Signature Page to Stockholders' Agreement]
<PAGE>
JED COMMUNICATIONS ASSOCIATES, INC.
By: /s/ DANIEL G. BERGSTEIN
---------------------------------
Name:
Title:
/s/ DANIEL G. BERGSTEIN
-------------------------------------
Daniel G. Bergstein
[Address]
/s/ JOHN P. DUDA
-------------------------------------
John P. Duda
6733 N. Baltusrol Lane
Charlotte, NC 28210
/s/ MEYER HABERMAN
-------------------------------------
Meyer Haberman
[Address]
/s/ LISA R. HOOD
-------------------------------------
Lisa R. Hood
P.O. Box 486
Bucklin, KS 67834
/s/ EUGENE B. JOHNSON
-------------------------------------
Eugene B. Johnson
[Address]
[Signature Page to Stockholders' Agreement]
<PAGE>
/s/ WALTER E. LEACH, JR.
-------------------------------------
Walter E. Leach, Jr.
6419 Sharon Hills Road
Charlotte, NC 28210
/s/ PETER G. NIXON
-------------------------------------
Peter G. Nixon
P.O. Box 302
Westfield, NY 14787
/s/ MICHAEL J. STEIN
-------------------------------------
Michael J. Stein
3016 Toalson
Dodge City, KS 67801
/s/ JACK H. THOMAS
-------------------------------------
Jack H. Thomas
[Address]
/s/ TIMOTHY W. HENRY
-------------------------------------
Tim Henry
[Address]
/s/ PAT MORSE
-------------------------------------
Pat Morse
[Address]
[Signature Page to Stockholders' Agreement]
<PAGE>
/s/ PAT EUDY
-------------------------------------
Pat Eudy
[Address]
/s/ JOEL BERGSTEIN
-------------------------------------
Joel Bergstein
/s/ MICHAEL BERGSTEIN
-------------------------------------
Michael Bergstein
/s/ LINDY SOBEL BERGSTEIN
-------------------------------------
Lindy Sobel Bergstein
/s/ JORDAN BERGSTEIN
-------------------------------------
Jordan Bergstein
/s/ ELIZABETH HELLER
-------------------------------------
Elizabeth Heller
THOMAS H. LEE FOREIGN FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ ANTHONY J. DINOVI
---------------------------------
Name:
Title:
[Signature Page to Stockholders' Agreement]
<PAGE>
THOMAS H. LEE FOREIGN FUND IV-B, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ C. HUNTER BOLL
---------------------------------
Name:
Title:
1987 THOMAS H. LEE NOMINEE TRUST
By: /s/ THOMAS H. LEE
---------------------------------
Trustee:
/s/ DAVID V. HARKINS
-------------------------------------
David V. Harkins
THE HARKINS 1995 GIFT TRUST
By: /s/ SHERYLL J. HARKINS
---------------------------------
Trustee: Sheryll J. Harkins
Trustee
/s/ SCOTT A. SCHOEN
-------------------------------------
Scott A. Schoen
/s/ C. HUNTER BOLL
-------------------------------------
C. Hunter Boll
[Signature Page to Stockholders' Agreement]
<PAGE>
/s/ SCOTT M. SPERLING
-------------------------------------
Scott M. Sperling
/s/ ANTHONY J. DINOVI
-------------------------------------
Anthony J. DiNovi
/s/ THOMAS M. HAGERTY
-------------------------------------
Thomas M. Hagerty
/s/ WARREN C. SMITH, JR.
-------------------------------------
Warren C. Smith, Jr.
/s/ SETH W. LAWRY
-------------------------------------
Seth W. Lawry
/s/ KENT R. WELDON
-------------------------------------
Kent R. Weldon
/s/ TERRENCE M. MULLEN
-------------------------------------
Terrence M. Mullen
/s/ TODD M. ABBRECHT
-------------------------------------
Todd M. Abbrecht
/s/ CHARLES A. BRIZIUS
-------------------------------------
Charles A. Brizius
/s/ SCOTT JAECKEL
-------------------------------------
Scott Jaeckel
[Signature Page to Stockholders' Agreement]
<PAGE>
/s/ SOREN OBERG
-------------------------------------
Soren Oberg
/s/ THOMAS R. SHEPHERD
-------------------------------------
Thomas R. Shepherd
/s/ JOSEPH J. INCANDELA
-------------------------------------
Joseph J. Incandela
/s/ WENDY L. MASLER
-------------------------------------
Wendy L. Masler
/s/ ANDREW D. FLASTER
-------------------------------------
Andrew D. Flaster
ROBERT SCHIFF LEE 1988 IRREVOCABLE
TRUST
By: /s/ CHARLES W. ROBINS
---------------------------------
Trustee:
/s/ STEPHEN ZACHARY LEE
-------------------------------------
Stephen Zachary Lee
/s/ CHARLES W. ROBINS
-------------------------------------
Charles W. Robins as Custodian for
Jesse Lee
/s/ CHARLES W. ROBINS
-------------------------------------
Charles W. Robins as Custodian for
Nathan Lee
[Signature Page to Stockholders' Agreement]
<PAGE>
/s/ CHARLES W. ROBINS
-------------------------------------
Charles W. Robins
/s/ JAMES WESTRA
-------------------------------------
James Westra
THOMAS H. LEE CHARITABLE
INVESTMENT L.P.
By: Thomas H. Lee,
its general partner
By: /s/ THOMAS H. LEE
---------------------------------
Name:
Title:
THL-CCI INVESTORS LIMITED PARTNERSHIP
By: THL Investment Management Corp.
its general partner
By: /s/ WENDY L. MASLER
---------------------------------
Name:
Title:
PUTNAM INVESTMENTS, INC.
By: /s/ WILLIAM H. WOOLVERTON
---------------------------------
Name:
Title:
[Signature Page to Stockholders' Agreement]
<PAGE>
For purposes of Section 12.5 only:
THL EQUITY ADVISORS IV, LLC
By: /s/ ANTHONY J. DINOVI
---------------------------------
Name:
Title:
For purposes of Section 12.5 only:
KELSO & COMPANY, L.P.
By: Kelso & Companies, Inc.,
its general partner
By: /s/ JAMES J. CONNORS
---------------------------------
Name: James J. Connors, II
Title: Vice President and General
Counsel
[Signature Page to Stockholders' Agreement]
<PAGE>
SCHEDULE A
THL Related Parties
Thomas H. Lee Foreign Fund IV, L.P.
Thomas H. Lee Foreign Fund IV-B, L.P.
1987 Thomas H. Lee Nominee Trust
David V. Harkins
The Harkins 1995 Gift Trust
Scott A. Schoen
C. Hunter Boll
Scott M. Sperling
Anthony J. DiNovi
Thomas M. Hagerty
Warren C. Smith, Jr.
Seth W. Lawry
Kent R. Weldon
Terrence M. Mullen
Todd M. Abbrecht
Charles A. Brizius
Scott Jaeckel
Soren Oberg
Thomas R. Shepherd
Joseph J. Incandela
Wendy L. Masler
Andrew D. Flaster
Robert Schiff Lee 1988 Irrevocable Trust
Stephen Zachary Lee
Charles W. Robins as Custodian for Jesse Lee
Charles W. Robins as Custodian for Nathan Lee
Charles W. Robins
James Westra
Thomas H. Lee Charitable Investment L.P.
THL-CCI Investors Limited Partnership
Putnam Investments, Inc.
<PAGE>
SCHEDULE B
Management Stockholders
John P. Duda
Lisa R. Hood
Eugene B. Johnson
Walter E. Leach, Jr.
Peter G. Nixon
Michael J. Stein
Jack H. Thomas
Tim Henry
Pat Morse
Pat Eudy
<PAGE>
SCHEDULE C
Kelso Holders
<PAGE>
EXHIBIT A
Five Year Plan
See attached.
<PAGE>
EXHIBIT B
Annual Budget for 2000 Fiscal Year
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 subject to the Stockholders'
Agreement of MJD Communications, Inc., dated as of December [__], 1999, as the
same shall be amended from time to time, except for rights in respect of the
proceeds of any disposition of such Shares.
-------------------------
[signature of spouse]
<PAGE>
ANNEX A
(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;
(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;
<PAGE>
(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
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.
ii
<PAGE>
Exhibit 10.26
================================================================================
REGISTRATION RIGHTS AGREEMENT
MJD COMMUNICATIONS, INC.
Dated as of January ___, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Registrations Upon Request.............................................................................1
1.1. IPO Request by the Investor Stockholders....................................................1
1.2. Requests by the Investor Stockholders.......................................................2
1.3. Registration Statement Form.................................................................3
1.4. Expenses....................................................................................3
1.5. Priority in Demand Registrations............................................................3
1.6. No Company Initiated Registration...........................................................4
2. Incidental Registrations...............................................................................4
3. Registration Procedures................................................................................6
4. Underwritten Offerings................................................................................11
4.1. Underwriting Agreement.....................................................................11
4.2. Selection of Underwriters..................................................................11
5. Holdback Agreements...................................................................................12
6. Preparation; Reasonable Investigation.................................................................13
7. No Other Registration Rights; No Grant of Future Registration Rights..................................13
8. Kelso Holders; THL Holders............................................................................13
9. Indemnification.......................................................................................14
9.1. Indemnification by the Company.............................................................14
9.2. Indemnification by the Sellers.............................................................14
9.3. Notices of Claims, etc.....................................................................15
9.4. Other Indemnification......................................................................16
9.5. Indemnification Payments...................................................................16
9.6. Other Remedies.............................................................................17
10. Representations and Warranties.......................................................................17
11. Definitions..........................................................................................18
12. Miscellaneous........................................................................................20
12.1. Rule 144, etc.............................................................................20
12.2. Successors, Assigns and Transferees.......................................................20
<PAGE>
12.3. Stock Splits..............................................................................21
12.4. Amendment and Modification................................................................21
12.5. Additional Management Stockholders........................................................21
12.6. Governing Law.............................................................................22
12.7. Invalidity of Provision...................................................................22
12.8. Notices...................................................................................22
12.9. Headings; Execution in Counterparts.......................................................24
12.10. Injunctive Relief........................................................................24
12.11. Term.....................................................................................24
12.12. Further Assurances.......................................................................24
12.13. Entire Agreement.........................................................................24
</TABLE>
ii
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of January 20, 2000,
by and among MJD Communications, Inc., a Delaware corporation (the "COMPANY"),
Kelso Investment Associates V, L.P., a Delaware limited partnership ("KIA V"),
Kelso Equity Partners V, L.P., a Delaware limited partnership ("KEP V"; and,
together with KIA V, "KELSO"), Thomas H. Lee Equity Fund IV, L.P., a Delaware
limited partnership ("THL FUND IV"), those parties listed on Schedule A attached
hereto (collectively, the "THL RELATED PARTIES"; together with THL Fund IV,
"THL" and each of them together with Kelso, the "INVESTOR STOCKHOLDERS"), JED
Communications Associates, Inc., a Delaware corporation (formerly named Bugger
Associates, Inc. ("JED")), Daniel G. Bergstein ("BERGSTEIN"), Joel Bergstein,
Michael Bergstein, Lindy Sobel Bergstein, Meyer Haberman ("HABERMAN"; together
with JED, Bergstein, Joel Bergstein, Michael Bergstein and Lindy Sobel Bergstein
(the "OTHER INVESTORS"), and those employees of the Company or its subsidiaries
listed on Schedule B (collectively, the "MANAGEMENT STOCKHOLDERS"). The Investor
Stockholders, the Other Investors and the Management Stockholders are
hereinafter referred to collectively as the "STOCKHOLDERS". Capitalized terms
used herein without definition are defined in Section 11.
WHEREAS, the Stockholders have purchased or, simultaneously
with the execution of this Agreement, are purchasing shares of Common Stock;
WHEREAS, the parties hereto wish to set forth certain rights
and obligations with respect to the registration of the shares of Common Stock
under the Securities Act.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the parties hereto agree as follows:
1. REGISTRATIONS UPON REQUEST.
1.1. IPO REQUEST BY THE INVESTOR STOCKHOLDERS. The Investor
Stockholders shall jointly have the right to request that the Company effect an
IPO of its Common Stock at any time and after December 31, 2004 either Investor
Stockholder that still owns at least 10% of the Shares owned by it as of the
Closing Date shall have such right. In the event that the Investor Stockholders
(or a single Investor Stockholder if so entitled) make such a request, the
Company agrees that it will use its best efforts
<PAGE>
to file a registration statement for an IPO of its Common Stock with the
Commission and that the Company will use its best efforts to have such
registration statement declared effective by the Commission as soon as is
reasonably practicable.
1.2. REQUESTS BY THE INVESTOR STOCKHOLDERS. At any time
following an IPO, each Investor Stockholder shall have the right to make up to
four requests that the Company effect the registration under the Securities Act
of all or a portion of the Registrable Securities owned by 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 1.2 until a period of 90 days (or such
longer period as may be required by any other agreement to which the Company is
a party but in any event no longer than 180 days) shall have elapsed from the
effective date of the most recent registration previously effected pursuant to
this Section 1.1 or Section 1.2. A request made by either of the Investor
Stockholders shall not be counted for purposes of the request limitations set
forth above (A) if such Investor Stockholder determines in its good faith
judgment to withdraw the proposed registration of any Registrable Securities
requested to be registered pursuant to this Section 1.2 due to marketing or
regulatory reasons; PROVIDED, HOWEVER that such withdrawal shall be effected
prior to the effectiveness of the registration statement related to the proposed
registration, (B) the registration statement relating to any such request is not
declared effective within 120 days of the date such registration statement is
first filed with the Commission, (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 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 Investor Stockholder's reasonable
satisfaction within 30 days, (D) if more than 10% of the Registrable Securities
requested by such Investor Stockholder to be included in the registration are
not so included pursuant to Section 1.5, or (E) the conditions to closing
specified in the underwriting agreement or purchase agreement entered into in
connection with the registration relating to any such request are not satisfied
(other than as a result of a default or breach thereunder by such Investor
Stockholder). Upon any such request, the Company will promptly, but in any event
within 15 days, give written notice of such request to all holders of
Registrable Securities and thereupon the Company will, subject to Section 1.5,
use its best efforts to effect the prompt registration under the Securities Act
of:
(i) the Registrable Securities which the Company has been so requested
to register by the Investor Stockholder pursuant to this Section 1.2,
and
2
<PAGE>
(ii) all other Registrable Securities which the Company has been
requested to register by the holders thereof by written request given
to the Company by such holders within 15 days after the giving of such
written notice by the Company to such holders,
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 the Requesting Stockholder.
1.3. REGISTRATION STATEMENT FORM. A registration requested
pursuant to Section 1.2 shall be effected by the filing of a registration
statement on a form agreed to by the Investor Stockholder requesting such
registration.
1.4. EXPENSES. The Company will pay all Registration Expenses
in connection with any registration requested under Sections 1.1 and 1.2,
whether or not any related registration statement becomes effective; PROVIDED
that, with respect to registrations requested under Section 1.2, each seller of
Registrable Securities shall pay all Registration Expenses to the extent
required to be paid by such seller under applicable law.
1.5. PRIORITY IN DEMAND REGISTRATIONS. If a registration
pursuant to Section 1.2 involves an underwritten offering, and the managing
underwriter (or, in the case of an offering which is not underwritten, a
nationally recognized investment banking firm) 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 without adversely affecting the marketability or
offering price of the offering, the Company will include in such registration up
to the number which the Company is so advised can be sold in such offering
without such adverse effect, FIRST, the Registrable Securities of the Investor
Stockholders, the Other Investors and the Management Stockholders, on a PRO RATA
basis (based on the number of shares of Registrable Securities owned by each
such Stockholder), and SECOND, the securities, if any, being sold by the
Company. Notwithstanding the foregoing, no Management Stockholder (or any
successor manager of the Company and its subsidiaries) will be entitled to
participate in any such registration requested by an Investor Stockholder to the
extent that the managing underwriter (or, in the case of an offering that is not
underwritten, a nationally recognized investment banking firm) shall determine
in good faith and in writing (with a copy to each affected Person requesting
registration of Registrable Securities), that the participation of such
Management Stockholder would adversely affect the marketability
3
<PAGE>
or offering price of the securities being sold in such registration, it being
understood that the Company will include in such registration that number of
shares of those Management Stockholders which can be sold in such offering
without such adverse effect. In the event of any such determination under this
Section 1.5, the Company shall give the affected Management Stockholders notice
of such determination in lieu of the notice otherwise required under Section
1.2.
1.6. NO COMPANY INITIATED REGISTRATION. After receipt of
notice of a requested registration pursuant to Section 1.2, the Company shall
not initiate, without the consent of the Investor Stockholders, a registration
of any of its equity securities for its own account until 90 days after such
registration has been terminated or declared effective (unless advised by the
managing underwriter that a longer period, not to exceed 180 days, is required,
or such shorter period as the managing underwriter for any underwritten offering
may agree), except as provided in Section 5(b).
2. INCIDENTAL REGISTRATIONS. If the Company at any time
proposes to register any of its equity securities under the Securities Act for
its own account (other than pursuant to a registration on Form S-4 or S-8 or any
successor form), the Company will give prompt written notice to all holders of
Registrable Securities regarding such proposed registration. Upon the written
request of any such holder made within 15 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 such Registrable Securities on a PRO
RATA basis in accordance with such intended method or methods of disposition,
PROVIDED that:
(a) (i) if such registration shall be in connection with an
IPO, 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 any Management Stockholder in any
proposed registration pursuant to this Section 2 to the extent that the
managing underwriter (or, in the case of an offering that is not
underwritten, a nationally recognized investment banking firm) shall
determine in good faith that the participation of such Management
Stockholder would adversely affect the marketability or the offering
price of such offering and PROVIDED, FURTHER, that in the event of any
such determination under subsection (i) or (ii), the Company shall give
the affected holders of Registrable Securities
4
<PAGE>
notice of such determination in lieu of the notice otherwise required
by the first paragraph of this Section 2.
(b) if, at any time after giving written notice (pursuant to
this Section 2) of its intention to register 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 Registration Expenses in
connection therewith, other than Registration Expenses required to be
paid by the holder of such Registrable Securities under applicable law
), without prejudice, however, to the rights of the Investor
Stockholders to request that a registration be effected under Section
1.2; and
(c) if in connection with a registration pursuant to this
Section 2, the managing underwriter of such registration (or, in the
case of an offering that is not underwritten, a nationally recognized
investment banking firm) shall advise the Company in writing (with a
copy to each holder of Registrable Securities requesting registration
thereof) that the number of securities requested and otherwise proposed
to be included in such registration exceeds the number which can be
sold in such offering without adversely affecting the marketability and
offering price of such offering, then in the case of any registration
pursuant to this Section 2, 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 without such adverse effect,
FIRST, the securities, if any, being sold by the Company, and SECOND,
the Registrable Securities of the Investor Stockholders, the Other
Investors and, subject to Section 2(a)(ii), the Management
Stockholders, on a PRO RATA basis (based on the number of shares of
Registrable Securities owned by each such Stockholder).
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 and all underwriting discounts and commissions and transfer
taxes, if any. No registration effected under this Section 2 shall relieve the
Company from its obligation to effect registrations under Section 1.2.
5
<PAGE>
3. REGISTRATION PROCEDURES. If and whenever the Company is
required to use its best efforts to effect the registration under the Securities
Act of any shares of its Common Stock as provided in Section 1.1, or of
Registrable Securities as provided in Sections 1.2 and 2, the Company will
promptly:
(a) prepare, and as soon as practicable (but in any event
within 90 days of receipt of a request for an IPO or 60 days of receipt
of a request for registration pursuant to Section 1.2) thereafter, file
with the Commission, a registration statement with respect to such
Registrable Securities, make all required filings with the NASD and use
its best efforts to cause such registration statement to become
effective as soon as practicable;
(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 copies of all documents proposed to be filed with
the Commission in connection with such registration to (I) counsel
selected by the Investor Stockholders in the case of a registration
pursuant to Section 1.1, by the Investor Stockholder requesting
registration, in the case of a registration pursuant to Section 1.2,
and otherwise, by the Majority Holders, whether or not such Majority
Holders are participating as selling stockholders in such registration
and which counsel may also be counsel to the Company and (II) each
seller of Registrable Securities, if any, and such documents shall be
subject to the review of such counsel. The Company shall give such
counsel and sellers reasonable time and opportunity to review and
comment on all documents proposed to be filed with the Commission in
connection with such registration. The Company shall not file any
registration statement or any amendment or post-effective amendment or
supplement to such registration statement or the prospectus used in
connection therewith to which such counsel 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;
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(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 included 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 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, authorities or
self-regulatory bodies as may be necessary by virtue of the business
and operations of the Company 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 the Investor Stockholders, if such Investor
Stockholder is a seller of Registrable Securities:
(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
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(ii) to the extent permitted by generally accepted
auditing standards, 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 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 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 such
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
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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 or of any order suspending or preventing the use
of any related prospectus 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 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;
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(n) furnish to any holder of such Registrable Securities such
information and assistance as such holder may reasonably request in
connection with any "due diligence" effort which such seller deems
appropriate; and
(o) use its best efforts to take all other steps necessary to
effect the registration of such Registrable Securities contemplated
hereby.
As a condition to its registration of Registrable Securities
of any prospective seller, the Company may require such seller of any
Registrable Securities as to which any registration is being effected to execute
powers-of-attorney, custody arrangements and other customary agreements
appropriate to facilitate the offering and 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 (in a capacity as a selling stockholder) any seller of any Registrable
Securities covered thereby by name, or otherwise identifies such seller as the
holder of any Registrable Securities, to which counsel to such seller may
reasonably object.
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 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(a) 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).
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4. UNDERWRITTEN OFFERINGS.
4.1. UNDERWRITING AGREEMENT. If requested by the underwriters
for any underwritten offering pursuant to a registration requested under
Sections 1.1, 1.2 or 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 underwriters and to the Investor
Stockholders (unless the Investor Stockholders are not participating in such
registration, in which case, counsel to the Majority Holders). Any such
underwriting agreement shall contain such representations and warranties 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 a majority of the
Registrable Securities to be distributed by such underwriter 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 the Investor
Stockholders in their respective capacities as stockholders and/or controlling
persons, 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 pursuant to Section 9.2.
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 underwriter group (the members of which shall be of
nationally recognized standing) to administer the offering with the consent of
any Investor Stockholder who continues to hold at least 10% of the number of
Shares such Investor Stockholder owns on the date hereof. Notwithstanding the
foregoing sentence, whenever a registration requested pursuant to Section 1.2 is
for an underwritten offering, the Investor Stockholder requesting such
registration will have the right to select the underwriter group (the member of
which shall be of nationally recognized standing) to administer the offering,
but only with the approval of the Company and any Investor Stockholder who
continues
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to hold at least 10% of the of the number of Shares such Investor Stockholder
owns on the date hereof, such approval not to be unreasonably withheld.
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 Sections 1.1, 1.2 or 2, each
holder of Registrable Securities agrees by acquisition of such Registrable
Securities not to effect any sale or distribution, including any sale pursuant
to Rule 144 under the Securities Act, except for sales or distributions not
involving a public offering and where the transferee agrees to be bound by the
terms of this Agreement, or to request registration under Section 1.2 of any
Registrable Securities within seven days prior to and 90 days (unless advised by
the managing underwriter that a longer period, not to exceed 180 days, is
required, or such shorter period as the managing underwriter for any
underwritten offering may agree) after the effective date of the registration
statement relating to such registration, except as part of such registration or
unless, in the case of a sale or distribution not involving a public offering,
the transferee agrees in writing to be subject to this Section 5 even if such
Registrable Securities cease to be Registrable Securities upon such transfer. If
requested by such managing underwriter, each holder of Registrable Securities
agrees to execute an agreement to such effect with the Company and consistent
with such managing underwriter's customary form of holdback agreement.
(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, or such shorter period as
the managing underwriter for any underwritten offering may agree) after the
effective date of any registration statement filed pursuant to Sections 1.1 or
1.2 (except (I) as part of such registration, (II) as permitted by the related
underwriting, or (III) pursuant to a registration on Form S-4 or S-8 or any
successor form). In addition, upon the request of the managing underwriter, the
Company shall use its best efforts to cause each holder (other than any holder
already subject to Section 5(a)) 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 an agreement to
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such effect with the Company and consistent with such managing underwriter's
customary form of holdback agreement.
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 counsel
to the holders of such Registrable Securities so to be registered 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 such counsel access to
the financial and other records, pertinent corporate documents and properties of
the Company and its subsidiaries and 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 in each case as shall be
reasonably requested by such counsel in connection with such registration
statement.
7. NO OTHER REGISTRATION RIGHTS; NO GRANT OF FUTURE
REGISTRATION RIGHTS. The Company has not granted registration rights to any
Person other than those reflected in this Agreement and the Registration Rights
Agreement, dated as of July 31, 1997, by and among the Company, Carousel Capital
Partners, L.P., Kelso and the other parties thereto, which agreement has been
terminated as of the date hereof and is of no further force or effect. The
Company shall not grant any other demand or incidental registration rights to
any other Person without the prior written consent of: (I) Kelso, so long as
Kelso continues to own at least 15% of the number of shares of Common Stock that
Kelso owns on the date hereof and (II) THL, so long as THL continues to own at
least 15% of the number of shares of Common Stock that THL owns on the date
hereof.
8. KELSO HOLDERS; THL HOLDERS. (a) Notwithstanding the
definition of the term "Registrable Securities": (I) Kelso shall have the right
to have included in any registration pursuant to Section 1.2 or 2 any shares of
Common Stock owned by any Kelso Holder and such shares shall be deemed
Registrable Securities that shall be considered owned by Kelso for purposes of
the "cut-back" provisions applicable to such registration and (II) THL shall
have the right to have included in any registration pursuant to Section 1.1 or 2
any shares of Common Stock owned by any THL Holder and such shares shall be
deemed Registrable Securities that shall be considered owned by THL for purposes
of the "cut-back" provisions applicable to such registration.
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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, defend and hold harmless (A) each seller of such
Registrable Securities, (B) the directors, members, stockholders, officers,
partners, employees, agents and Affiliates of 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 (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) any of the foregoing against
any and all losses, claims, damages or liabilities (or actions, investigations
or proceedings in respect thereof), jointly or severally, 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 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 or any other expenses reasonably incurred by them in
connection with enforcing its rights hereunder or under the underwriting
agreement entered into in connection with such offering or investigating,
preparing, pursuing or defending any such loss, claim, damage, liability,
action, investigation, proceeding or expense, 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. If the Company is entitled to, and
does, assume the defense of the related action or proceedings provided herein,
then 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 1.2 or 2 that the Company shall have
received an undertaking satisfactory to it from each of the prospective sellers
of such Registrable Securities to
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indemnify and hold harmless, severally and ratably, not jointly, in the same
manner and to the same extent as set forth in Section 9.1, the Company, its
directors, officers, employees, agents 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. (The
Company and the holders of the Registrable Securities hereby acknowledge and
agree that, unless otherwise expressly agreed to in writing by such holders, the
only information furnished or to be furnished to the Company for use in any
registration statement or prospectus relating to the Registrable Securities or
the holder thereof or in any amendment, supplement or preliminary materials
associated therewith are statements specifically relating to (A) transactions
between such holder and its Affiliates, on the one hand, and the Company, on the
other hand, (B) the beneficial ownership of shares of Common Stock by such
holder and its Affiliates, (C) the name and address of such holder and (D) any
other information relating to the Registrable Securities or the holder thereof
required to be furnished in a registration statement by applicable law. If any
additional information about such holder or the plan of distribution (other than
for an underwritten offering) is required by law to be disclosed in any such
document, then such holder shall not unreasonably withhold its agreement
referred to in the immediately preceding sentence of this Section 9.2). 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 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
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notice to the indemnifying party 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 reasonably determines, based upon advice of 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, 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 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.
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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, investigations,
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, investigation, 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 for indemnification
under this Section 9 if such indemnification were enforceable under applicable
law.
10. REPRESENTATIONS AND WARRANTIES. Each Stockholder
represents and warrants to the Company and each other Stockholder that:
(i) such Stockholder has the power, authority and capacity
(or, in the case of any Stockholder that is a corporation, limited liability
company or limited partnership, all corporate, limited liability company or
limited partnership power and authority, as the case may be) to execute, deliver
and perform this Agreement;
(ii) in the case of a Stockholder that is a corporation,
limited liability company or limited partnership, the execution, delivery and
performance of this Agreement by such Stockholder has been duly and validly
authorized and approved by all necessary corporate, limited liability company or
limited partnership action, as the case may be;
(iii) this Agreement has been duly and validly executed and
delivered by such Stockholder and constitutes a valid and legally binding
obligation of such Stockholder, enforceable in accordance with its terms,
subject to bankruptcy,
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insolvency, reorganization, moratorium or other similar laws affecting or
relating to creditors' rights generally and general principles of equity; and
(iv) the execution, delivery and performance of this Agreement
by such Stockholder does not and will not violate the terms of or result in the
acceleration of any obligation under (A) any material contract, commitment or
other material instrument to which such Stockholder is a party or by which such
Stockholder is bound or (B) in the case of a Stockholder that is a corporation,
limited liability company or limited partnership, the certificate of
incorporation, certificate of formation, certificate of limited partnership,
by-laws, limited liability company agreement or limited partnership agreement,
as the case may be.
11. 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, including immediate family members of
natural persons, partners in a partnership and members of a limited liability
company.
BOARD: the board of directors of the Company.
COMMISSION: the Securities and Exchange Commission.
COMMON STOCK: the Class A Common Stock of the Company, par
value $.01 per share.
CONVERSION DATE: As defined in the Stockholders' Agreement.
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.
KELSO HOLDERS: As defined in the Stockholders' Agreement.
MAJORITY HOLDERS: the holders of at least 51% of the
Registrable Securities.
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NASD: National Association of Securities Dealers, Inc.
NASDAQ: the Nasdaq National Market.
PERMITTED TRANSFEREE: as defined in Section 12.2.
PERSON: an individual, corporation, partnership, limited
liability company, joint venture, 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 Rule 13d-3 of the Exchange Act) by
Kelso, the Kelso Holders, THL, the THL Holders, the Other Investors, the
Management Stockholders or the Permitted Transferees. As to any particular
shares of Common Stock, 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) in
the case of Management Stockholders who hold options to purchase shares of
Common Stock, a registration statement on Form S-8 with respect to the sale of
the shares of Common Stock into which such options are exercisable shall have
become effective under the Securities Act, (III) they shall have been sold to
the public pursuant to Rule 144 under the Securities Act, (IV) they shall have
been otherwise transferred other than to a Permitted Transferee, Kelso Holder or
THL Holder and subsequent disposition of them shall not require registration
under the Securities Act or an exemption therefrom or any similar state law then
in force or (V) they shall have ceased to be outstanding. In the event that any
action is required hereunder prior to the Conversion Date, the shares of the
Company's Class B Non-Voting Common Stock, par value $.01 per share, and the
Company's Series D Non-Voting Convertible Preferred Stock, par value $.01 per
share, held by Kelso and THL will be treated on an as-converted basis.
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) transfer agents', trustees', depositories', registrars' and
fiscal agents' fees, (VII) 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, (VIII) reasonable
19
<PAGE>
fees and disbursements of any one counsel retained by the sellers of Registrable
Securities, which counsel shall be designated in the manner specified in Section
3(c) and (IX) 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.
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.
SHARES: As defined in the Stockholders' Agreement.
STOCKHOLDERS' AGREEMENT: the Stockholders' Agreement, dated as
of the date hereof, as the same may be amended from time to time, among the
Company, THL, KIA V, KEP V, the Other Investors and the Management Stockholders.
12. MISCELLANEOUS.
12.1. 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.
12.2. SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement
shall be binding upon and insure to the benefit of the parties hereto and their
respective successors and permitted assigns under this Section 12.2. Provided
that an express assignment shall have been made, and the assignee has executed a
joinder agreement agreeing to be bound by all of the assignor's obligations
hereunder, including, without limitation, Section 5 hereof, copies 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
20
<PAGE>
Registrable Securities, PROVIDED that such transferee acquires such Registrable
Securities in accordance with the terms of the Stockholders' Agreement
("PERMITTED TRANSFEREES"). Notwithstanding anything herein to the contrary, (A)
the Management Stockholders must exercise all rights hereunder on behalf of any
of their Permitted Transferees and all other parties hereto shall be entitled to
deal exclusively with the Management Stockholders and rely on the consent,
waiver or any other action by the Management Stockholders as the consent, waiver
or other action, as the case may be, of any such Permitted Transferees of such
Management Stockholders and (B) THL shall be entitled to and must exercise all
rights hereunder on behalf of any of the THL Related Parties or the THL Holders,
and Kelso shall be entitled to and must exercise all rights hereunder on behalf
of any of the Kelso Holders, and all other parties hereto shall be entitled to
deal exclusively with THL or Kelso, as applicable, and rely on the consent,
waiver or any other action by THL or Kelso, as applicable, as the consent,
waiver or other action, as the case may be, of the THL Related Parties, the THL
Holders and the Kelso Holders.
12.3. STOCK SPLITS. Each holder of Registrable Securities
agrees that it will vote to effect a stock split, reverse stock split,
recapitalization or combination with respect to any Registrable Securities in
connection with any registration of any 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,
reverse stock split, recapitalization 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, reverse stock split,
recapitalization or combination.
12.4. 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 holders
of Registrable Securities whose interests would be adversely affected by such
amendment.
12.5. ADDITIONAL MANAGEMENT STOCKHOLDERS. Notwithstanding
anything in this Agreement to the contrary, the Company may, with only the
consent of the Investor Stockholders, admit additional Management Stockholders
to this Agreement and amend Schedule 1 accordingly, provided that (A) any such
Management Stockholder(s) holds Registrable Securities, (B) has become a party
to the Stockholders' Agreement (to extent the Stockholders' Agreement is still
in effect) and (C) has executed and delivered a joinder agreement and such other
agreements or documents as may reasonably be requested by the Company.
21
<PAGE>
12.6. 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.
12.7. 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.
12.8. 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
Fax: (704) 344-8121
Attention: Mr. Walter E. Leach, Jr.
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Fax: (212) 319-4090
Attention: Neil A. Torpey, Esq.
and a copy to Kelso at its address set forth in (vi) below and
a copy to THL at its address set forth in (vii) below.
(ii) If to a Management Stockholder, as provided on Schedule 1.
(iii) If to JED, Joel Bergstein, Michael Bergstein or Lindy Sobel
Bergstein, to such party c/o Bergstein at his address set
forth in (iv) below.
22
<PAGE>
(iv) If to Bergstein, to him at:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Fax: (212) 319-4090
Attention: Daniel G. Bergstein
(v) If to Meyer Haberman, to him at:
Interquest, Inc.
599 Lexington Avenue
New York, New York
Fax: (212) 703-0596
Attention: Meyer Haberman
(vi) If to Kelso, to it at:
Kelso & Company
320 Park Avenue
New York, New York 10022
Fax: 212-223-2379
Attention: James J. Connors, II, Esq.
General Counsel
(vii) If to THL, to it at:
Thomas H. Lee Partners, L.P.
75 State Street
Boston, Massachusetts 02109
Fax: 617-227-3514
Attention: Anthony J. DiNovi
Kent R. Weldon
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Fax: (312) 861-2200
Attention: William S. Kirsch, P.C.
23
<PAGE>
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.
12.9. 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.
12.10. 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.
12.11. 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.
12.12. FURTHER ASSURANCES. Subject to the specific terms of
this Agreement, each of the Company and the 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.
12.13. 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 and understanding in respect of the subject matter contained
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
24
<PAGE>
IN WITNESS WHEREOF this Agreement has been signed by each of
the parties hereto, and shall be effective as of the date first above written.
MJD COMMUNICATIONS, INC.
By: /s/ Walter E. Leach, Jr.
-------------------------------
Name:
Title:
KELSO INVESTMENT ASSOCIATES V, L.P.
By: Kelso Partners V, L.P.,
its general partner
By: /s/ George E. Matelich
-------------------------------
Name: George E. Matelich
Title: General Partner
KELSO EQUITY PARTNERS V, L.P.
By: /s/ George E. Matelich
-------------------------------
Name: George E. Matelich
Title: General Partner
THOMAS H. LEE EQUITY FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Anthony J. Dinovi
-------------------------------
Name:
Title:
[Signature Page to Registration Rights Agreement]
<PAGE>
JED COMMUNICATIONS ASSOCIATES, INC.
By: /s/ Daniel G. Bergstein
-------------------------------
Name:
Title:
/s/ Daniel G. Bergstein
-------------------------------
Daniel G. Bergstein
/s/ Joel Bergstein
-------------------------------
Joel Bergstein
/s/ Michael Bergstein
-------------------------------
Michael Bergstein
/s/ Lindy Sobel Bergstein
-------------------------------
Lindy Sobel Bergstein
/s/ Meyer Haberman
-------------------------------
Meyer Haberman
/s/ John P. Duda
-------------------------------
John P. Duda
/s/ Lisa R. Hood
-------------------------------
Lisa R. Hood
/s/ Eugene B. Johnson
-------------------------------
Eugene B. Johnson
[Signature Page to Registration Rights Agreement]
<PAGE>
/s/ Walter E. Leach, Jr.
-------------------------------
Walter E. Leach, Jr.
/s/ Peter G. Nixon
-------------------------------
Peter G. Nixon
/s/ Michael J. Stein
-------------------------------
Michael J. Stein
/s/ Jack H. Thomas
-------------------------------
Jack H. Thomas
/s/ Timothy W. Henry
-------------------------------
Tim Henry
/s/ Pat Morse
-------------------------------
Pat Morse
/s/ Pat Eudy
-------------------------------
Pat Eudy
THOMAS H. LEE FOREIGN FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Anthony J. Dinovi
-------------------------------
Name:
Title:
[Signature Page to Registration Rights Agreement]
<PAGE>
THOMAS H. LEE FOREIGN FUND IV-B, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ C. Hunter Boll
-------------------------------
Name:
Title:
1987 THOMAS H. LEE NOMINEE TRUST
By: /s/ Thomas H. Lee
-------------------------------
Trustee:
/s/ David V. Harkins
-----------------------------------
David V. Harkins
THE HARKINS 1995 GIFT TRUST
By: /s/ Sheryll J. Harkins
-------------------------------
Trustee: Sheryll J. Harkins
Trustee
/s/ Scott A. Schoen
-----------------------------------
Scott A. Schoen
/s/ C. Hunter Boll
-----------------------------------
C. Hunter Boll
/s/ Scott M. Sperling
-----------------------------------
Scott M. Sperling
[Signature Page to Registration Rights Agreement]
<PAGE>
/s/ Anthony J. Dinovi
-----------------------------------
Anthony J. DiNovi
/s/ Thomas M. Hagerty
-----------------------------------
Thomas M. Hagerty
/s/ Warren C. Smith, Jr.
-----------------------------------
Warren C. Smith, Jr.
/s/ Seth W. Lawry
-----------------------------------
Seth W. Lawry
/s/ Kent R. Weldon
-----------------------------------
Kent R. Weldon
/s/ Terrence M. Mullen
-----------------------------------
Terrence M. Mullen
/s/ Todd M. Abbrecht
-----------------------------------
Todd M. Abbrecht
/s/ Charles A. Brizius
-----------------------------------
Charles A. Brizius
/s/ Scott Jaeckel
-----------------------------------
Scott Jaeckel
/s/ Soren Oberg
-----------------------------------
Soren Oberg
/s/ Thomas R. Shepherd
-----------------------------------
Thomas R. Shepherd
[Signature Page to Registration Rights Agreement]
<PAGE>
/s/ Joseph J. Incandela
---------------------------------
Joseph J. Incandela
/s/ Wendy L. Masler
---------------------------------
Wendy L. Masler
/s/ Andrew D. Flaster
---------------------------------
Andrew D. Flaster
ROBERT SCHIFF LEE 1988 IRREVOCABLE
TRUST
By: /s/ Charles W. Robins
----------------------------
Trustee:
/s/ Stephen Zachary Lee
---------------------------------
Stephen Zachary Lee
/s/ Charles W. Robins
---------------------------------
Charles W. Robins as Custodian
for Jesse Lee
/s/ Charles W. Robins
---------------------------------
Charles W. Robins as Custodian
for Nathan Lee
/s/ Charles W. Robins
---------------------------------
Charles W. Robins
/s/ James Westra
---------------------------------
James Westra
[Signature Page to Registration Rights Agreement]
<PAGE>
THOMAS H. LEE CHARITABLE
INVESTMENT L.P.
By: Thomas H. Lee,
its general partner
By: /s/ Thomas H. Lee
---------------------------------
Name:
Title:
THL-CCI INVESTORS LIMITED PARTNERSHIP
By: THL Investment Management Corp.,
its general partner
By: /s/ Wendy L. Masler
---------------------------------
Name:
Title:
PUTNAM INVESTMENTS, INC.
By: /s/ William H. Woolverton
---------------------------------
Name:
Title:
[Signature Page to Registration Rights Agreement]
<PAGE>
SCHEDULE A
THL Related Parties
Thomas H. Lee Foreign Fund IV, L.P.
Thomas H. Lee Foreign Fund IV-B, L.P.
1987 Thomas H. Lee Nominee Trust
David V. Harkins
The Harkins 1995 Gift Trust
Scott A. Schoen
C. Hunter Boll
Scott M. Sperling
Anthony J. DiNovi
Thomas M. Hagerty
Warren C. Smith, Jr.
Seth W. Lawry
Kent R. Weldon
Terrence M. Mullen
Todd M. Abbrecht
Charles A. Brizius
Scott Jaeckel
Soren Oberg
Thomas R. Shepherd
Joseph J. Incandela
Wendy L. Masler
Andrew D. Flaster
Robert Schiff Lee 1988 Irrevocable Trust
Stephen Zachary Lee
Charles W. Robins as Custodian for Jesse Lee
Charles W. Robins as Custodian for Nathan Lee
Charles W. Robins
James Westra
Thomas H. Lee Charitable Investment L.P.
THL-CCI Investors Limited Partnership
Putnam Investments, Inc.
<PAGE>
SCHEDULE B
Management Stockholders
John P. Duda
6733 N. Baltusrol Lane
Charlotte, NC 28210
Fax:
Lisa R. Hood
P.O. Box 486
Bucklin, KS 67834
Fax:
Eugene B. Johnson
[Address]
Fax:
Walter E. Leach, Jr.
6419 Sharon Hills Road
Charlotte, NC 28210
Fax:
Peter G. Nixon
P.O. Box 302
Westfield, NY 14787
Fax:
Michael J. Stein
3016 Toalson
Dodge City, KS 67801
Fax:
Jack H. Thomas
[Address]
Fax:
Tim Henry
[Address]
Fax:
<PAGE>
Pat Morse
[Address]
Fax:
Pat Eudy
[Address]
Fax:
<PAGE>
Exhibit 10.27
MJD COMMUNICATIONS, INC.
MANAGEMENT SERVICES AGREEMENT
WITH
THL EQUITY ADVISORS IV, LLC
AGREEMENT entered into as of January 20, 2000, between THL Equity
Advisors IV, LLC, a Massachusetts limited liability company (the "CONSULTANT"),
and MJD Communications, Inc., a Delaware corporation ("MJD").
WHEREAS, the Consultant has and its affiliates have staff
specially skilled in corporate finance, strategic corporate planning and other
management skills and services;
WHEREAS, as of the date hereof, Thomas H. Lee Equity Fund IV,
L.P. ("THL FUND IV") and certain parties related to it have consummated an
investment in MJD pursuant to the Stock Purchase Agreement (the "STOCK PURCHASE
AGREEMENT") dated as of January 4, 2000, among MJD, THL Fund IV, certain parties
related to THL Fund IV, Kelso Investment Associates V, L.P., Kelso Equity
Partners V, L.P. and the other parties thereto.
WHEREAS, MJD will require the Consultant's special skills and
manage ment advisory services in connection with its general business
operations; and
WHEREAS, the Consultant is willing to provide such skills and
services to MJD.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, do hereby agree as
follows:
1. ENGAGEMENT. MJD hereby engages the Consultant for the Term (as
defined in Section 2) and upon the terms and conditions herein set forth to
provide consulting and management advisory services to MJD, as requested by MJD.
These services will be in connection with financial and strategic corporate
planning and such other management services as the Consultant and MJD shall
mutually agree. In consideration of the remunera tion herein specified, the
Consultant accepts such engagement and agrees to perform the services specified
herein.
2. TERM. The engagement hereunder shall be for a term commencing
on the Closing Date (as defined in the Stock Purchase Agreement) and expiring on
the earlier to occur of (a) December 31, 2006, or (b) the date that THL Fund IV
and the THL Holders
<PAGE>
(as defined in the Stock Purchase Agreement) cease to own, collectively, at
least 10% of the number of shares of MJD Class A Common Stock (including any
Class A Common Stock issuable upon conversion of MJD's Series D Preferred Stock
or Class B Common Stock) they hold collectively immediately after the Closing
(as defined in the Stock Purchase Agreement), unless the Consultant and MJD
agree to extend the term beyond such date, in which case the term shall expire
on the date agreed to by the Consultant and MJD (the "TERM").
3. SERVICES TO BE PERFORMED. The Consultant shall devote
reasonable time and efforts to the performance of the consulting and management
advisory services contemplated by this Agreement. However, no precise number of
hours is to be devoted by the Consultant on a weekly or monthly basis. The
Consultant may perform services under this Agreement directly, through its
employees or agents or with such outside consultants as the Consultant may
engage for such purpose. The Consultant agrees that the consulting and
management advisory services provided hereunder will be performed by individuals
qualified in accordance with the Consultant's normal business practices and in a
manner providing quality of standards no lower than the quality provided by the
Consultant to its other customers.
4. COMPENSATION; EXPENSE REIMBURSEMENT.
(a) In consideration of the management advisory services
hereunder, MJD agrees to pay to the Consultant an annual fee equal to $500,000.
The annual fee shall be payable in equal quarterly installments each year, to be
paid in advance on the first day of each calendar quarter with the first such
payment, pro-rated for the period of the Closing Date through March 31, 2000, to
be made at the Closing. Notwithstanding anything to the contrary herein, MJD's
obligation to pay such advisory fee to the Consultant shall be deferred to the
extent MJD is restricted from paying such advisory fee by any debt instruments
or agreements, including any amendment, renewal, extension, substitution,
refinancing, replacement or other modification thereof ("FINANCING DOCUMENTS")
entered into by MJD or any of its subsidiaries. In the event MJD is unable to
pay all or any part of such advisory fee to the Consultant when due because of
any such restriction, MJD shall pay such deferred amounts together with 5.5%
annual interest thereon, as soon as such payment is permissible under such
Financing Documents and MJD shall not make any payment or distribution or pay
any dividend to its stockholders until all such deferred fees and accrued
interest thereon have been paid to the Consultant. Any consulting fee payments
made hereunder or pursuant to the Amended and Restated Financial Advisory
Agreement with Kelso & Company, L.P. of even date herewith (the "KELSO FINANCIAL
ADVISORY AGREEMENT") that MJD is permitted to make under its Financing
Documents, including any back-payments with interest paid pursuant to the
preceding sentence, shall be shared ratably between the Consultant and Kelso &
Company, L.P.
(b) MJD at all times shall reimburse the Consultant for all
out-of-pocket expenses incurred by the Consultant and its affiliates in
connection with management
2
<PAGE>
advisory services provided by the Consultant hereunder, including, without
limitation, reasonable travel, lodging, accounting, legal, administrative and
similar out-of-pocket costs reasonably incurred by it and its affiliates in
connection with the performance of services for MJD hereunder. Reimbursement
shall be made only upon presentation to MJD by the Consultant of reasonably
itemized documentation therefor.
5. INDEMNIFICATION.
(a) In addition to its agreements and obligations under this
Agreement, MJD agrees to indemnify and hold harmless the Consultant and its
affiliates (including their respective officers, directors, stockholders,
partners, members, employees, agents and control persons (as the term is used in
the Securities Act of 1933, as amended, and the rules and regulations
thereunder)) from and against, and pay or reimburse the Consultant and such
other indemnified persons for, any and all actions, claims, demands,
proceedings, investigations, inquiries, liabilities, obligations, fines,
deficiencies, costs, expenses, royalties, losses and damages (whether or not
resulting from third party claims), including interest and penalties with
respect thereto, in any way related to or arising out of the execution, delivery
or existence of this Agreement, the assertion, preservation or enforcement of
any rights hereunder or the performance by the Consultant of services under
Sections 1 and 3 of this Agreement (other than for expenses described in Section
4(b) hereof which are reimbursed under Section 4 hereof), and to reimburse the
Consultant and any other such indemnified person for out-of-pocket expenses and
reasonable legal and accounting expenses incurred by it in connection with or
relating to investigating, preparing to defend, defending, asserting or
prosecuting any actions, claims or other proceedings (including any
investigation or inquiry) arising in any manner out of or in connection with the
execution, delivery or existence of this Agreement, the assertion, preservation
or enforcement of any rights hereunder or the Consultant's performance of
services hereunder (whether or not such indemnified person is a named party in
such proceeding); PROVIDED, HOWEVER, that MJD shall not be responsible under
this Section 5 for any claims, liabilities, losses, damages or expenses to the
extent that they are finally judicially determined to result from actions taken
by the Consultant (or such other indemnified person) due to the Consultant's (or
such other indemnified person's) gross negligence or willful misconduct.
(b) MJD also agrees that the Consultant (or such other
indemnified person) shall not have any liability (whether direct or indirect, in
contract or tort or otherwise) to MJD or any of its affiliates for or in
connection with the retention of the Consultant pursuant to this Agreement or
the performance by the Consultant of its obligations under this Agreement,
except to the extent that any such liability is finally judicially determined to
have resulted from the Consultant's (or such other indemnified person's) gross
negligence or willful misconduct.
(c) The indemnification provided for in this Section 5 shall be
in addition to any liability which MJD may otherwise have to the Consultant or
the other indemnified persons. Further, if and to the extent that the
indemnification provided for in this Section 5
3
<PAGE>
is not enforceable for any reason, MJD agrees to make the maximum contribution
possible pursuant to applicable law to the payment and satisfaction of any
actions, claims, liabilities, losses and damages incurred by the Consultant or
the other indemnified persons for which they would have otherwise been entitled
to be indemnified hereunder.
(d) If any action, claim, proceeding, inquiry or investigation is
commenced as to which the Consultant (or such other indemnified person) proposes
to demand indemnification, the Consultant shall notify MJD with reasonable
promptness; PROVIDED, HOWEVER, that any failure by the Consultant (or such other
indemnified person) to notify MJD shall not relieve MJD from its obligations
hereunder. The Consultant (or such other indemnified person) shall have the
right to retain counsel of its own choice to represent it, and MJD shall pay the
reasonable fees, expenses and disbursements of such counsel as incurred; and
such counsel shall, to the extent consistent with its professional
responsibilities, cooperate with MJD and any counsel designated by MJD. MJD
shall be liable for any settlement of any claim against the Consultant (or such
other indemnified person) made with MJD's written consent, which consent shall
not be unreasonably withheld. MJD shall not, without the prior written consent
of the Consultant (or such other indemnified person), settle or compromise any
claim, or permit a default or consent to the entry of any judgment in respect
thereof, unless such settlement, compromise or consent includes, as an
unconditional term thereof, the giving by the claimant to the Consultant (or
such other indemnified person) of an unconditional release from all liability in
respect of such claim.
6. NOTICES. All notices hereunder, to be effective, shall be in
writing and shall be sent by reputable nationwide courier, or sent by facsimile,
as follows:
(i) If to the Consultant:
THL Equity Advisors IV, LLC
c/o Thomas H. Lee Company
75 State Street
Boston, Massachusetts 02109
Attention: Anthony J. DiNovi
Kent R. Weldon
Facsimile: 617-227-3514
(ii) If to MJD:
MJD Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Attention: Walt E. Leach, Jr.
Facsimile: 704-344-8121
7. MODIFICATIONS. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, superseding all
prior
4
<PAGE>
understandings and agreements whether written or oral. This Agreement may not be
amended or revised except by a writing signed by the parties; PROVIDED, HOWEVER,
that if MJD (a) amends the Kelso Financial Advisory Agreement or (b) enters into
any other management services agreement, consulting agreement or similar
arrangement, whether with Kelso & Company, L.P. or with any other person or
entity that invests or has invested (or whose affiliate invests or has invested)
in MJD's securities, in the case of either (a) or (b), on terms more favorable
to such other consultant than the terms provided to the Consultant herein, then
this Agreement shall be deemed to be revised and amended to provide the
Consultant with all the benefits of those more favorable terms; it being
understood, however, that if MJD amends the Kelso Financial Advisory Agreement
or otherwise agrees to provide Kelso & Company, L.P. or any affiliate thereof
any additional payment, whether in connection with the termination of the Kelso
Financial Advisory Agreement (other than the payment already provided for under
Section 4b thereof) or otherwise, then the Consultant shall be entitled to the
exact same payment.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns but may not be assigned by either party without the prior written
consent of the other. Notwithstanding the foregoing (but subject to the final
sentence of Section 3), the Consultant may elect to have its obligations
hereunder performed in whole or in part by any other entity affiliated with the
Consultant, and the Consultant may direct that any compensation (including all
or a portion of the fees under Section 4(a)), and reimbursement of expenses be
paid to the affiliate performing the services hereunder with respect thereto.
9. CAPTIONS. Captions have been inserted solely for the
convenience of reference and in no way define, limit or describe the scope or
substance of any provision and shall not affect the validity of any other
provision.
10. GOVERNING LAW. This Agreement shall be construed under and
governed by and construed in accordance with the laws of the State of New York,
without reference to principles of conflicts or choice of laws, or any other law
that would make the laws of any jurisdiction other than the State of New York
applicable hereto.
11. COUNTERPARTS. This Agreement may be signed in multiple
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
12. SURVIVAL. MJD's obligations under Section 4 (with respect to
any fees or expenses incurred prior to or at the termination of this Agreement)
and under Section 5 shall survive the termination of this Agreement.
5
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IN WITNESS WHEREOF, the parties have duly executed this
Management Services Agreement as of the date first above written.
THL EQUITY ADVISORS IV, LLC
By: /s/ Anthony J. Dinovi
------------------------------
Name: Anthony J. DiNovi
Title: Managing Director
MJD COMMUNICATIONS, INC.
By: /s/ Walter E. Leach, Jr.
-------------------------------
Name:
Title:
<PAGE>
Exhibit 10.28
MJD COMMUNICATIONS, INC.
AMENDED AND RESTATED FINANCIAL ADVISORY AGREEMENT
WITH
KELSO & COMPANY, L.P.
AMENDED AND RESTATED FINANCIAL ADVISORY AGREEMENT
entered into as of January 20, 2000, between Kelso & Company, L.P., a Delaware
limited partnership (the "CONSULTANT"), and MJD Communications, Inc., a Delaware
corporation ("MJD").
WHEREAS, in connection with an investment made in MJD by Kelso
Investment Associates V, L.P. ("KIA V") and Kelso Equity Partners V, L.P. ("KEP
V") pursuant to the Stock Purchase Agreement, dated as of March 6, 1997, among
MJD, Carousel Capital Partners, L.P., KIA V and KEP V, the Consultant and MJD
entered into a Financial Advisory Agreement, dated as of July 31, 1997 (the
"FINANCIAL ADVISORY AGREEMENT");
WHEREAS, as of the date hereof, KIA V and KEP V have consummated an
additional investment in MJD pursuant to the Stock Purchase Agreement (the
"STOCK PURCHASE AGREEMENT"), dated as of January 4, 2000, among MJD, Thomas H.
Lee Equity Fund IV, L.P. ("THL FUND IV"), certain parties related to THL Fund
IV, KIA V, KEP V and the other parties thereto;
WHEREAS, in connection with such additional investment, the
Consultant and MJD wish to amend and restate the Financial Advisory Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, do hereby agree as
follows:
1. ENGAGEMENT. MJD hereby engages the Consultant for the Term (as
defined in Section 2) and upon the terms and conditions herein set forth to
provide consulting and management advisory services to MJD, as requested by MJD.
These services will be in connection with financial and strategic corporate
planning and such other management services as the Consultant and MJD shall
mutually agree. In consideration of the
<PAGE>
remuneration herein specified, the Consultant accepts such engagement and agrees
to perform the services specified herein.
2. TERM. The engagement hereunder shall be for a term commencing on
January 17, 2000 and expiring on the earlier to occur of (I) December 31, 2006
or (II) the date that KIA V and KEP V and the Kelso Holders (as defined in the
Stock Purchase Agreement) cease to own, collectively, at least 10% of the number
of shares of MJD Class A Common Stock (including any Class A Common Stock
issuable upon conversion of MJD's Series D Preferred Stock or Class B Common
Stock) they hold collectively immediately after the Closing (as defined in the
Stock Purchase Agreement), unless the Consultant and MJD agree to extend the
term beyond such date, in which case the term shall expire on the date agreed to
by the Consultant and MJD (the "TERM").
3. SERVICES TO BE PERFORMED. The Consultant shall devote reasonable
time and efforts to the performance of the consulting and management advisory
services contemplated by this Agreement. However, no precise number of hours is
to be devoted by the Consultant on a weekly or monthly basis. The Consultant may
perform services under this Agreement directly, through its employees or agents
or with such outside consultants as the Consultant may engage for such purpose.
The Consultant agrees that the consulting and management advisory services
provided hereunder will be performed by individuals qualified in accordance with
the Consultant's normal business practices and in a manner providing quality of
standards no lower than the quality provided by the Consultant to its other
customers.
4. COMPENSATION; EXPENSE REIMBURSEMENT.
a. In consideration of the management advisory services hereunder,
MJD agrees to pay to the Consultant an annual fee equal to $500,000. The annual
fee shall be payable in equal quarterly installments each year, to be paid in
advance on the first day of each calendar quarter, with the first such payment
to be made at the Closing and to be calculated on a pro-rata basis for the
period from the Closing through March 31, 2000. Notwithstanding anything to the
contrary herein, MJD's obligation to pay such advisory fee to the Consultant
shall be deferred to the extent MJD is restricted from paying such advisory fee
by any debt instruments or agreements, including any amendment, renewal,
extension, substitution, refinancing, replacement or other modification thereof
("FINANCING DOCUMENTS") entered into by MJD or any of its subsidiaries. In the
event MJD is unable to pay all or any part of such advisory fee to the
Consultant when due because of any such restriction, MJD shall pay such deferred
amounts together with 5.5% annual interest thereon, as soon as such payment is
permissible under such Financing Documents and MJD shall not make any payment or
distribution or pay any dividend to
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its stockholders until all such deferred fees and accrued interest thereon have
been paid to the Consultant. Any consulting fee payments made hereunder or
pursuant to the Management Services Agreement with THL Equity Advisors IV, LLC
of even date herewith (the "THL Management Services Agreement") that MJD is
permitted to make under its Financing Documents, including any back-payments
with interest paid pursuant to the preceding sentence shall be shared ratably
between the Consultant and THL Equity Advisors IV, LLC.
b. MJD agrees to pay the Consultant a transaction fee of
$8,445,080.1/ Such fee shall be payable by MJD upon the earlier to occur of (I)
an initial public offering of the common stock of MJD, (II) the sale of MJD to a
third party or parties, whether structured as a sale of stock, merger, sale of
assets, recapitalization or otherwise, or (III) KIA V and KEP V ceasing to own,
collectively, at least 10% of the number of shares of MJD Class A Common Stock
(including any Class A Common Stock issuable upon conversion of MJD's Series D
Preferred Stock or Class B Common Stock) they hold collectively immediately
after the Closing.
c. MJD at all times shall reimburse the Consultant for all
out-of-pocket expenses incurred by the Consultant and its affiliates in
connection with management advisory services provided by the Consultant
hereunder, including, without limitation, reasonable travel, lodging,
accounting, legal, administrative and similar out-of-pocket costs reasonably
incurred by it and its affiliates in connection with the performance of services
for MJD hereunder. Reimbursement shall be made only upon presentation to MJD by
the Consultant of reasonably itemized documentation therefor.
5. INDEMNIFICATION.
a. In addition to its agreements and obligations under this
Agreement, MJD agrees to indemnify and hold harmless the Consultant and its
affiliates (including their respective officers, directors, stockholders,
partners, members, employees, agents and control persons (as the term is used in
the Securities Act of 1933, as amended, and the rules and regulations
thereunder)) from and against, and pay or reimburse the Consultant and such
other indemnified persons for, any and all actions, claims, demands,
proceedings, investigations, inquiries, liabilities, obligations, fines,
deficiencies, costs, expenses, royalties, losses and damages (whether or not
resulting from third party claims), including interest and penalties with
respect thereto, in any way related to or arising out of the execution, delivery
or existence of this Agreement, the assertion,
- --------
1 This amount will equal the fee being paid to THL at the Closing.
3
<PAGE>
preservation or enforcement of any rights hereunder, or the performance by the
Consultant of services under Sections 1 and 3 of this Agreement (other than for
expenses described in Section 4(c) hereof which are reimbursed under Section 4
hereof), and to reimburse the Consultant and any other such indemnified person
for out-of-pocket expenses and reasonable legal and accounting expenses incurred
by it in connection with or relating to investigating, preparing to defend, or
defending, asserting or prosecuting any actions, claims or other proceedings
(including any investigation or inquiry) arising in any manner out of or in
connection with the execution, delivery or existence of this Agreement, the
assertion, preservation or enforcement of any rights hereunder or the
Consultant's performance of services hereunder (whether or not such indemnified
person is a named party in such proceeding); PROVIDED, HOWEVER, that MJD shall
not be responsible under this Section 5 for any claims, liabilities, losses,
damages or expenses to the extent that they are finally judicially determined to
result from actions taken by the Consultant (or such other indemnified person)
due to the Consultant's (or such other indemnified person's) gross negligence or
willful misconduct.
b. MJD also agrees that Consultant (or such other indemnified person)
shall not have any liability (whether direct or indirect, in contract or tort or
otherwise) to MJD or any of its affiliates for or in connection with the
retention of the Consultant pursuant to this Agreement or the performance by the
Consultant of its obligations under this Agreement, except to the extent that
any such liability is finally judicially determined to have resulted from the
Consultant's (or such other indemnified person's) gross negligence or willful
misconduct.
c. The indemnification provided for in this Section 5 shall be in
addition to any liability which MJD may otherwise have to the Consultant or the
other indemnified persons. Further, if and to the extent that the
indemnification provided for in this Section 5 is not enforceable for any
reason, MJD agrees to make the maximum contribution possible pursuant to
applicable law to the payment and satisfaction of any actions, claims,
liabilities, losses and damages incurred by the Consultant or the other
indemnified persons for which they would have otherwise been entitled to be
indemnified hereunder.
d. If any action, claim, proceeding, inquiry or investigation is
commenced as to which the Consultant (or such other indemnified person) proposes
to demand indemnification, the Consultant shall notify MJD with reasonable
promptness; PROVIDED, HOWEVER, that any failure by the Consultant (or such other
indemnified person) to notify MJD shall not relieve MJD from its obligations
hereunder. The Consultant (or such other indemnified person) shall have the
right to retain counsel of its own choice to represent it, and MJD shall pay the
reasonable fees, expenses and disbursements of such counsel as incurred; and
such counsel shall, to the extent consistent with its professional
4
<PAGE>
responsibilities, cooperate with MJD and any counsel designated by MJD. MJD
shall be liable for any settlement of any claim against the Consultant (or such
other indemnified person) made with MJD's written consent, which consent shall
not be unreasonably withheld. MJD shall not, without the prior written consent
of the Consultant (or such other indemnified person), settle or compromise any
claim, or permit a default or consent to the entry of any judgment in respect
thereof, unless such settlement, compromise or consent includes, as an
unconditional term thereof, the giving by the claimant to the Consultant (or
such other indemnified person) of an unconditional release from all liability in
respect of such claim.
6. NOTICES. All notices hereunder, to be effective, shall be in
writing and shall be sent by reputable nationwide courier, or sent by facsimile,
as follows:
(i) If to the Consultant:
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Attention: James J. Connors, II, Esq.
Facsimile: 212-223-2379
(ii) If to MJD:
MJD Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Attention: Walter E. Leach, Jr.
Facsimile: 704-334-8121
7. MODIFICATIONS. This Agreement amends and restates the Financial
Advisory Agreement and supersedes all prior agreements and understandings among
the parties with respect to such subject matter, whether written or oral. This
Agreement may not be amended or revised except by a writing signed by the
parties; PROVIDED, that if MJD (a) amends the THL Management Services Agreement,
or (b) enters into any other management services agreement, consulting agreement
or similar arrangement, whether with THL Equity Advisors IV, LLC or with any
other persons or entity that invests or has invested (or whose affiliate invests
or has invested) in MJD's securities, in the case of either (a) or (b), on terms
more favorable to such other consultant than the terms provided to the
Consultant herein, then this Agreement shall be deemed to be revised and amended
to provide the Consultant with all the benefits of those more favorable terms,
it being
5
<PAGE>
understood, however, that if MJD amends the THL Management Services Agreement,
or otherwise agrees, to provide THL Equity Advisors IV, LLC or any affiliate
thereof any additional payment, whether in connection with the termination of
the THL Management Services Agreement or otherwise the Consultant shall be
entitled to the exact same payment, in addition to the payment the Consultant is
entitled to under Section 4b hereof.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns
but may not be assigned by either party without the prior written consent of the
other. Notwithstanding the foregoing (but subject to the final sentence of
Section 3), the Consultant may elect to have its obligations hereunder performed
in whole or in part by any other entity affiliated with the Consultant, and the
Consultant may direct that any compensation (including all or a portion of the
fees under Section 4(a)), and reimbursement of expenses to be paid to the
affiliate performing the services hereunder with respect thereto.
9. CAPTIONS. Captions have been inserted solely for the convenience of
reference and in no way define, limit or describe the scope or substance of any
provision and shall not affect the validity of any other provision.
10. GOVERNING LAW. This Agreement shall be construed under and governed
by and construed in accordance with the laws of the State of New York, without
reference to principles of conflicts or choice of laws, or any other law that
would make the laws of any jurisdiction other than the State of New York
applicable hereto.
11. COUNTERPARTS. This Agreement may be signed in multiple
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
12. SURVIVAL. MJD's obligations under Section 4 (with respect to any
fees or expenses incurred prior to or at the termination of this Agreement) and
under Section 5 shall survive the termination of this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amended and
Restated Financial Advisory Agreement as of the date first above written.
KELSO & COMPANY, L.P.
BY: KELSO & COMPANIES, INC.,
ITS GENERAL PARTNER
By: /s/ James J. Connors, II
--------------------------------
Name: James J. Connors, II
Title: Vice President and General
Counsel
MJD COMMUNICATIONS, INC.
By: /s/ Walter E. Leach, Jr.
--------------------------------
Name:
Title:
7
<PAGE>
Exhibit 10.29
NON-COMPETITION, NON-SOLICITATION AND
NON-DISCLOSURE AGREEMENT
THIS NON-COMPETITION, NON-SOLICITATION AND NON-DISCLOSURE
AGREEMENT ("AGREEMENT"), dated January 20, 2000, by and between MJD
Communications, Inc., a Delaware corporation (the "COMPANY"), and JED
Communications Associates, Inc., a Delaware corporation (the "SELLING
STOCKHOLDER").
RECITALS
A. Contemporaneously herewith, the Selling Stockholder is selling
certain outstanding shares of the Company's capital stock to Thomas H. Lee
Equity Fund IV, L.P. and certain of its related parties (collectively, "THL")
pursuant to a Stock Purchase Agreement, dated as of January 4, 2000, by and
among the Company, THL, Kelso Investment Associates V, L.P. ("KIA V") and Kelso
Equity Partners V, L.P. ("KEP V" and together with KIA V, "KELSO"), the Selling
Stockholder and the other parties thereto (the "PURCHASE AGREEMENT").
B. The Selling Stockholder will receive significant consideration
as a result of THL's acquisition of its capital stock in the Company.
C. The Selling Stockholder has had access to nonpublic,
confidential and proprietary information concerning the business and operations
of the Company and its subsidiaries, and the Selling Stockholder is capable of
utilizing such nonpublic, confidential and proprietary information to compete
with the Company and its subsidiaries and, as a result, could cause significant
harm to the Company and its subsidiaries.
D. THL and Kelso are making a significant investment in the
Company and its subsidiaries and such investment is contingent upon protecting
the entire goodwill and going business value inherent in the value of the shares
which they are acquiring from the significant harm that could be caused to the
Company and its subsidiaries by such competition from the Selling Stockholder
using such nonpublic, confidential and proprietary information.
E. The Company and the Selling Stockholder are entering into this
Agreement for the purpose of preserving the proprietary rights, going business
value and entire goodwill of the Company and its subsidiaries by ensuring that
the Selling Stockholder does not use any of such nonpublic, confidential and
proprietary information to directly or indirectly compete with the Company and
its subsidiaries for the period hereinafter set forth, and acknowledge that
execution of this Agreement is necessary to enable THL and Kelso to capture all
of the goodwill and going business value presently inherent in the Company's
capital stock.
<PAGE>
F. In order to preserve the entire goodwill and going business
value of the Company, this Agreement must protect the Company from such
competition in all jurisdictions in which the Company currently does business or
plans to do business, which are those cities with populations of less than
250,000 in the states of Alabama, Colorado, Connecticut, Florida, Georgia,
Illinois, Kansas, Maine, Maryland, Massachusetts, Mississippi, New Hampshire,
New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota,
Texas, Vermont, Virginia, Washington and West Virginia.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Selling Stockholder hereby covenant and agree
as follows:
1. DEFINITIONS. In addition to the other terms defined elsewhere
in this Agreement, unless the context shall expressly or by necessary
implication indicate to the contrary, the following terms, as used herein, shall
have the following meanings:
"LINES OF BUSINESS" means the ownership, management or
operation of telephone companies or other access providers, including, but not
limited to, any production, marketing, promotion or sales related thereto.
"PERSON" means any individual, partnership, firm, corporation,
limited liability company, association, trust, unincorporated organization or
other entity.
"RESTRICTED PERIOD" means the period commencing on the date
hereof and ending five years after the date hereof.
"RESTRICTED TERRITORIES" means those cities with populations
of less than 250,000 in the states of Alabama, Colorado, Connecticut, Florida,
Georgia, Illinois, Kansas, Maine, Maryland, Massachusetts, Mississippi, New
Hampshire, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South
Dakota, Texas, Vermont, Virginia, Washington and West Virginia.
2. NON-COMPETITION. During the Restricted Period, the Selling
Stockholder and its affiliates shall not, directly or indirectly, either
individually or acting in concert or as an advisor, representative, agent,
employee, partner, shareholder, investor, lender, lessor, director, consultant
or in any other capacity on behalf of any other Person, participate or engage
in, or assist others in participating or engaging in, the Lines of Business in
the Restricted Territories; PROVIDED, HOWEVER, nothing herein shall prohibit the
Selling Stockholder from (i) holding shares in a corporation engaging in the
Lines of Business in the Restricted Territories so long as such shares, in the
aggregate, represent less than 50% of the issued and outstanding capital stock
of such corporation and the Selling Stockholder is not an officer or director of
such corporation or (ii) having any role
2
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(whether ownership, employment, or otherwise) in a corporation that generates
less than 15% of its total revenue in the Lines of Business in the Restricted
Territories.
3. NON-SOLICITATION. During the Restricted Period, the Selling
Stockholder and its affiliates shall not directly or indirectly, either
individually or acting in concert or as an advisor, representative, agent,
employee, partner, shareholder, investor, lender, director, consultant or in any
other capacity on behalf of any other Person, (i) with respect to the Lines of
Business, request, induce or attempt to influence any distributor or supplier of
goods or services to the Company or any of its subsidiaries to curtail, cancel
or refrain from increasing the amount or type of business such distributor or
supplier of goods or services is currently transacting, or transacts during the
Restricted Period, with the Company or its subsidiaries; (ii) solicit any
customer of the Company or any of its subsidiaries with whom the Company or any
of its subsidiaries has had any dealings for the purpose of soliciting business
to sell or otherwise provide to such customer or any other customer of the
Company or any of its subsidiaries any product or service included in the Lines
of Business, and in furtherance thereof, the Selling Stockholder, individually
or as an advisor, representative, agent, employee, partner, shareholder,
investor, lender, director, consultant or in any other capacity on behalf of any
other Person, shall not attempt in any manner to solicit and/or otherwise
persuade or induce any such customer of the Company or any of its subsidiaries
to cease to do business, reduce the amount of business which any such customer
has customarily done or contemplated doing or refrain from increasing the amount
of business with the Company and its subsidiaries ; (iii) except for
advertisements in generally available publications, solicit for employment any
individual who is an employee, agent or representative of the Company or any of
its subsidiaries as of the date hereof or any time during the Restricted Period;
or (iv) except for advertisements in generally available publications, influence
or attempt to influence any employee of the Company or any of its subsidiaries
to terminate his or her employment.
4. NON-DISCLOSURE OF CONFIDENTIAL OR PROPRIETARY INFORMATION. The
Selling Stockholder acknowledges that, as a result of its association with the
Company including, without limitation, the ownership of shares of capital stock
of the Company, and its performance of services as a consultant of the Company,
the Selling Stockholder has acquired confidential or proprietary information of
special value to the Company and its subsidiaries, and the Selling Stockholder
covenants and agrees that the Selling Stockholder and its affiliates shall not
during the Restricted Period directly or indirectly disclose any confidential or
proprietary information of the Company or any of its subsidiaries to any Person,
except with the prior written permission of the Company. For purposes of this
Section 4, the term "CONFIDENTIAL OR PROPRIETARY INFORMATION" means any and all
information which relates to matters such as, but not necessarily limited to,
trade secrets, research and development activities, books and records, customer
lists, suppliers, distribution channels, pricing information and private
processes as they may exist from time to time which the Selling Stockholder has
obtained or had disclosed to it as a result of its past association with the
Company and its subsidiaries. This Section 4 shall not be violated by disclosure
of information which (i) at the time of disclosure is publicly available through
no act or omission by the Selling Stockholder or any of its affiliates or (ii)
is disclosed pursuant to a court order or as otherwise required by law, on
condition that notice of the requirement for such disclosure is given to the
Company prior to the
3
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Selling Stockholder making or permitting any such disclosure and that the
Selling Stockholder shall cooperate in such manner as the Company may reasonably
request in resisting such disclosure.
5. REMEDIES. The Selling Stockholder acknowledges and agrees that
any breach of this Agreement will cause irreparable harm to the Company and/or
its subsidiaries and cannot be remedied solely by the recovery of damages.
Therefore, in the event of a breach by the Selling Stockholder or any of its
affiliates of this Agreement, the Company shall, in addition to any other
remedies it may have at law or in equity (including without limitation damages
or action for accounting or restitution) be entitled to an injunction and/or
restraining order from any court of competent jurisdiction. The election of any
remedy, at law or in equity, by the Company shall not be to the exclusion of any
other remedy then available to the Company and any and all such remedies shall
be cumulative.
6. JUDICIAL AMENDMENTS; SEVERABILITY. The parties agree and
intend that the covenants contained in this Agreement shall be construed as a
series of separate covenants, one for each applicable state or county. Except
for geographic coverage, each such separate covenant shall be deemed identical
in terms. It is expressly understood and agreed that, although the Company and
the Selling Stockholder consider the restrictions contained in this Agreement to
be reasonable for the purpose of preserving for the benefit of the Company and
its subsidiaries the proprietary rights, going business value and goodwill of
the Company and its subsidiaries, if a court of competent jurisdiction holds or
deems that any of the separate covenants contained in this Agreement is
unenforceable against the Selling Stockholder or any of its affiliates in
respect of a specific geographic area, then such unenforceable covenant shall be
deemed eliminated from this Agreement for the purpose of such proceedings to the
extent necessary to permit the remaining separate covenants to be enforced, and
such holding or determination shall not affect the enforceability of any of the
other separate covenants contained herein. If the court referred to above holds
or determines that any covenant or restriction contained in this Agreement is
unenforceable for any other reason, then the provisions of such covenant shall
not be rendered void but shall be deemed reduced or otherwise amended to the
extent such court may judicially determine or indicate to be reasonable and so
as to provide the Company and its subsidiaries, to the fullest extent permitted
by applicable law, the benefits intended by this Agreement.
7. ASSIGNMENT. The rights and obligations of the Company and its
subsidiaries hereunder shall inure to the benefit of, and be binding upon, their
successors and assigns. The Selling Stockholder may not delegate or assign its
obligations hereunder.
8. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when (i) delivered by
hand, (ii) transmitted by prepaid telex or telecopier, provided that a copy is
sent at about the same time by registered mail, return receipt requested, or
(iii) received by the addressee, if sent by Express Mail, Federal Express, or
other express delivery service to the addressee at the following addresses or
telecopier numbers (or to such other address or telecopier number as a party may
specify by notice given to the other party pursuant to this provision):
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If to the Selling Stockholder, to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Fax: (212) 319-4090
Attention: Daniel G. Bergstein
If to the Company, to:
MJD Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Fax: (704) 344-8121
Attention: Walter E. Leach, Jr.
with copies to:
Thomas H. Lee Partners, L.P.
75 State Street
Boston, Massachusetts 02109
Fax: (617) 227-3514
Attention: Anthony J. DiNovi
Kent R. Weldon
and
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Fax: (212) 751-3939
Attention: James J. Connors, II, Esq.
9. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument, but
all of which taken together shall constitute one agreement.
10. NO WAIVER. The failure of the Company to insist, in any one
or more instances, upon the strict performance of the terms and conditions of
this Agreement shall not be construed as a waiver or relinquishment of any right
hereunder nor of the future performance of any such terms and conditions.
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11. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of New York without giving effect to
any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
12. IMPORTANCE OF THIS AGREEMENT. It is understood by and between
the Company and the Selling Stockholder that the provisions of this Agreement
are an essential element and material inducement of THL's and Kelso's agreement
to purchase shares of capital stock of the Company and the Company's redemption
of shares of capital stock from the Selling Stockholder, and that, but for this
Agreement, the Company would not have entered into the Redemption Agreement or
consummated the transactions contemplated thereby or by the Purchase Agreement
and Kelso and THL would not have entered into the Purchase Agreement. The
Company and the Selling Stockholder acknowledge that the Line of Business and
Restricted Territory accurately depict the scope of the Company's and its
subsidiaries' business and that the Line of Business, Restricted Territory and
Restricted Period contained herein are reasonable, and the Selling Stockholder
represents and warrants that it will suffer no hardship as a result of the
specific enforcement of this Agreement.
* * * * *
6
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IN WITNESS WHEREOF, the parties have executed this
Non-Competition, Non- Solicitation and Non-Disclosure Agreement as of the day
and year first written above.
MJD COMMUNICATIONS, INC.
By: /s/ Walter E. Leach, Jr.
---------------------------------
Its: SVP & CFO
---------------------------------
JED COMMUNICATIONS ASSOCIATES, INC.
By: /s/ Daniel G. Bergstein
---------------------------------
Its:
---------------------------------
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Exhibit 10.30
NON-COMPETITION, NON-SOLICITATION AND
NON-DISCLOSURE AGREEMENT
THIS NON-COMPETITION, NON-SOLICITATION AND NON-DISCLOSURE
AGREEMENT ("AGREEMENT"), dated January 20, 2000, by and between MJD
Communications, Inc., a Delaware corporation (the "COMPANY"), and Daniel G.
Bergstein (the "SELLING STOCKHOLDER").
RECITALS
A. Contemporaneously herewith, the Selling Stockholder is
selling certain outstanding shares of the Company's capital stock to Thomas H.
Lee Equity Fund IV, L.P. and certain of its related parties (collectively,
"THL") pursuant to a Stock Purchase Agreement, dated as of January 4, 2000, by
and among the Company, THL, Kelso Investment Associates V, L.P. ("KIA V") and
Kelso Equity Partners V, L.P. ("KEP V" and together with KIA V, "KELSO"), the
Selling Stockholder and the other parties thereto (the "PURCHASE AGREEMENT").
B. The Selling Stockholder will receive significant
consideration as a result of THL's acquisition of his capital stock in the
Company.
C. The Selling Stockholder has had access to nonpublic,
confidential and proprietary information concerning the business and operations
of the Company and its subsidiaries, and the Selling Stockholder is capable of
utilizing such nonpublic, confidential and proprietary information to compete
with the Company and its subsidiaries and, as a result, could cause significant
harm to the Company and its subsidiaries.
D. THL and Kelso are making a significant investment in the
Company and its subsidiaries and such investment is contingent upon protecting
the entire goodwill and going business value inherent in the value of the shares
which they are acquiring from the significant harm that could be caused to the
Company and its subsidiaries by such competition from the Selling Stockholder
using such nonpublic, confidential and proprietary information.
E. The Company and the Selling Stockholder are entering into
this Agreement for the purpose of preserving the proprietary rights, going
business value and entire goodwill of the Company and its subsidiaries by
ensuring that the Selling Stockholder does not use any of such nonpublic,
confidential and proprietary information to directly or indirectly compete with
the Company and its subsidiaries for the period hereinafter set forth, and
acknowledge that execution of this Agreement is necessary to enable THL and
Kelso to capture all of the goodwill and going business value presently inherent
in the Company's capital stock.
<PAGE>
F. In order to preserve the entire goodwill and going business
value of the Company, this Agreement must protect the Company from such
competition in all jurisdictions in which the Company currently does business or
plans to do business, which are those cities with populations of less than
250,000 in the states of Alabama, Colorado, Connecticut, Florida, Georgia,
Illinois, Kansas, Maine, Maryland, Massachusetts, Mississippi, New Hampshire,
New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota,
Texas, Vermont, Virginia, Washington and West Virginia.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Selling Stockholder hereby covenant and
agree as follows:
1. DEFINITIONS. In addition to the other terms defined
elsewhere in this Agreement, unless the context shall expressly or by necessary
implication indicate to the contrary, the following terms, as used herein, shall
have the following meanings:
"LINES OF BUSINESS" means the ownership, management
or operation of telephone companies or other access providers, including, but
not limited to, any production, marketing, promotion or sales related thereto.
"PERSON" means any individual, partnership, firm,
corporation, limited liability company, association, trust, unincorporated
organization or other entity.
"RESTRICTED PERIOD" means the period commencing on
the date hereof and ending five years after the date hereof.
"RESTRICTED TERRITORIES" means those cities with
populations of less than 250,000 in the states of Alabama, Colorado,
Connecticut, Florida, Georgia, Illinois, Kansas, Maine, Maryland, Massachusetts,
Mississippi, New Hampshire, New York, Ohio, Oklahoma, Oregon, Pennsylvania,
Rhode Island, South Dakota, Texas, Vermont, Virginia, Washington and West
Virginia.
2. NON-COMPETITION. During the Restricted Period, the Selling
Stockholder and its affiliates shall not, directly or indirectly, either
individually or acting in concert or as an advisor, representative, agent,
employee, partner, shareholder, investor, lender, lessor, director, consultant
or in any other capacity on behalf of any other Person, participate or engage
in, or assist others in participating or engaging in, the Lines of Business in
the Restricted Territories; PROVIDED, HOWEVER, nothing herein shall prohibit the
Selling Stockholder from (i) holding shares in a corporation engaging in the
Lines of Business in the Restricted Territories so long as such shares, in the
aggregate, represent less than 50% of the issued and outstanding capital stock
of such corporation and the Selling Stockholder is not an officer or director of
such corporation or (ii) having any role
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(whether ownership, employment, or otherwise) in a corporation that generates
less than 15% of its total revenue in the Lines of Business in the Restricted
Territories.
3. NON-SOLICITATION. During the Restricted Period, the Selling
Stockholder and its affiliates shall not directly or indirectly, either
individually or acting in concert or as an advisor, representative, agent,
employee, partner, shareholder, investor, lender, director, consultant or in any
other capacity on behalf of any other Person, (i) with respect to the Lines of
Business, request, induce or attempt to influence any distributor or supplier of
goods or services to the Company or any of its subsidiaries to curtail, cancel
or refrain from increasing the amount or type of business such distributor or
supplier of goods or services is currently transacting, or transacts during the
Restricted Period, with the Company or its subsidiaries; (ii) solicit any
customer of the Company or any of its subsidiaries with whom the Company or any
of its subsidiaries has had any dealings for the purpose of soliciting business
to sell or otherwise provide to such customer or any other customer of the
Company or any of its subsidiaries any product or service included in the Lines
of Business, and in furtherance thereof, the Selling Stockholder, individually
or as an advisor, representative, agent, employee, partner, shareholder,
investor, lender, director, consultant or in any other capacity on behalf of any
other Person, shall not attempt in any manner to solicit and/or otherwise
persuade or induce any such customer of the Company or any of its subsidiaries
to cease to do business, reduce the amount of business which any such customer
has customarily done or contemplated doing or refrain from increasing the amount
of business with the Company and its subsidiaries ; (iii) except for
advertisements in generally available publications, solicit for employment any
individual who is an employee, agent or representative of the Company or any of
its subsidiaries as of the date hereof or any time during the Restricted Period;
or (iv) except for advertisements in generally available publications, influence
or attempt to influence any employee of the Company or any of its subsidiaries
to terminate his or her employment.
4. NON-DISCLOSURE OF CONFIDENTIAL OR PROPRIETARY INFORMATION.
The Selling Stockholder acknowledges that, as a result of his association with
the Company including, without limitation, the ownership of shares of capital
stock of the Company, and his employment by the Company, the Selling Stockholder
has acquired confidential or proprietary information of special value to the
Company and its subsidiaries, and the Selling Stockholder covenants and agrees
that the Selling Stockholder and its affiliates shall not during the Restricted
Period directly or indirectly disclose any confidential or proprietary
information of the Company or any of its subsidiaries to any Person, except with
the prior written permission of the Company. For purposes of this Section 4, the
term "CONFIDENTIAL OR PROPRIETARY INFORMATION" means any and all information
which relates to matters such as, but not necessarily limited to, trade secrets,
research and development activities, books and records, customer lists,
suppliers, distribution channels, pricing information and private processes as
they may exist from time to time which the Selling Stockholder has obtained or
had disclosed to it as a result of its past association with the Company and its
subsidiaries. This Section 4 shall not be violated by disclosure of information
which (i) at the time of disclosure is publicly available through no act or
omission by the Selling Stockholder or any of its affiliates or (ii) is
disclosed pursuant to a court order or as otherwise required by law, on
condition that notice of the requirement for such disclosure is given to the
Company prior to the Selling Stockholder
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making or permitting any such disclosure and that the Selling Stockholder shall
cooperate in such manner as the Company may reasonably request in resisting such
disclosure.
5. REMEDIES. The Selling Stockholder acknowledges and agrees
that any breach of this Agreement will cause irreparable harm to the Company
and/or its subsidiaries and cannot be remedied solely by the recovery of
damages. Therefore, in the event of a breach by the Selling Stockholder or any
of its affiliates of this Agreement, the Company shall, in addition to any other
remedies it may have at law or in equity (including without limitation damages
or action for accounting or restitution) be entitled to an injunction and/or
restraining order from any court of competent jurisdiction. The election of any
remedy, at law or in equity, by the Company shall not be to the exclusion of any
other remedy then available to the Company and any and all such remedies shall
be cumulative.
6. JUDICIAL AMENDMENTS; SEVERABILITY. The parties agree and
intend that the covenants contained in this Agreement shall be construed as a
series of separate covenants, one for each applicable state or county. Except
for geographic coverage, each such separate covenant shall be deemed identical
in terms. It is expressly understood and agreed that, although the Company and
the Selling Stockholder consider the restrictions contained in this Agreement to
be reasonable for the purpose of preserving for the benefit of the Company and
its subsidiaries the proprietary rights, going business value and goodwill of
the Company and its subsidiaries, if a court of competent jurisdiction holds or
deems that any of the separate covenants contained in this Agreement is
unenforceable against the Selling Stockholder or any of its affiliates in
respect of a specific geographic area, then such unenforceable covenant shall be
deemed eliminated from this Agreement for the purpose of such proceedings to the
extent necessary to permit the remaining separate covenants to be enforced, and
such holding or determination shall not affect the enforceability of any of the
other separate covenants contained herein. If the court referred to above holds
or determines that any covenant or restriction contained in this Agreement is
unenforceable for any other reason, then the provisions of such covenant shall
not be rendered void but shall be deemed reduced or otherwise amended to the
extent such court may judicially determine or indicate to be reasonable and so
as to provide the Company and its subsidiaries, to the fullest extent permitted
by applicable law, the benefits intended by this Agreement.
7. ASSIGNMENT. The rights and obligations of the Company and
its subsidiaries hereunder shall inure to the benefit of, and be binding upon,
their successors and assigns. The Selling Stockholder may not delegate or assign
his obligations hereunder.
8. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when (i) delivered by
hand, (ii) transmitted by prepaid telex or telecopier, provided that a copy is
sent at about the same time by registered mail, return receipt requested, or
(iii) received by the addressee, if sent by Express Mail, Federal Express, or
other express delivery service to the addressee at the following addresses or
telecopier numbers (or to such other address or telecopier number as a party may
specify by notice given to the other party pursuant to this provision):
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If to the Selling Stockholder, to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Fax: (212) 319-4090
Attention: Daniel G. Bergstein
If to the Company, to:
MJD Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Fax: (704) 344-8121
Attention: Walter E. Leach, Jr.
with copies to:
Thomas H. Lee Partners, L.P.
75 State Street
Boston, Massachusetts 02109
Fax: (617) 227-3514
Attention: Anthony J. DiNovi
Kent R. Weldon
and
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Fax: (212) 751-3939
Attention: James J. Connors, II, Esq.
9. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument, but
all of which taken together shall constitute one agreement.
10. NO WAIVER. The failure of the Company to insist, in any
one or more instances, upon the strict performance of the terms and conditions
of this Agreement shall not be construed as a waiver or relinquishment of any
right hereunder nor of the future performance of any such terms and conditions.
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<PAGE>
11. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without giving
effect to any choice or conflict of law provision or rule (whether of the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York.
12. IMPORTANCE OF THIS AGREEMENT. It is understood by and
between the Company and the Selling Stockholder that the provisions of this
Agreement are an essential element and material inducement of THL's and Kelso's
agreement to purchase shares of capital stock of the Company and the Company's
redemption of shares of capital stock from the Selling Stockholder, and that,
but for this Agreement, the Company would not have entered into the Redemption
Agreement or consummated the transactions contemplated thereby or by the
Purchase Agreement and Kelso and THL would not have entered into the Purchase
Agreement. The Company and the Selling Stockholder acknowledge that the Line of
Business and Restricted Territory accurately depict the scope of the Company's
and its subsidiaries' business and that the Line of Business, Restricted
Territory and Restricted Period contained herein are reasonable, and the Selling
Stockholder represents and warrants that he will suffer no hardship as a result
of the specific enforcement of this Agreement.
* * * * *
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IN WITNESS WHEREOF, the parties have executed this
Non-Competition, Non-Solicitation and Non-Disclosure Agreement as of the day and
year first written above.
MJD COMMUNICATIONS, INC.
By: /s/ WALTER E. LEACH, JR.
------------------------------------
Its: SVP & CFO
-----------------------------------
/s/ DANIEL G. BERGSTEIN
---------------------------------------
DANIEL G. BERGSTEIN
7
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Exhibit 10.31
NON-COMPETITION, NON-SOLICITATION AND
NON-DISCLOSURE AGREEMENT
THIS NON-COMPETITION, NON-SOLICITATION AND NON-DISCLOSURE
AGREEMENT ("AGREEMENT"), dated January 20, 2000, by and between MJD
Communications, Inc., a Delaware corporation (the "COMPANY"), and Meyer Haberman
(the "SELLING STOCKHOLDER").
RECITALS
A. Contemporaneously herewith, the Selling Stockholder is selling
certain outstanding shares of the Company's capital stock to Thomas H. Lee
Equity Fund IV, L.P. and certain of its related parties (collectively, "THL")
pursuant to a Stock Purchase Agreement, dated as of January 4, 2000, by and
among the Company, THL, Kelso Investment Associates V, L.P. ("KIA V") and Kelso
Equity Partners V, L.P. ("KEP V" and together with KIA V, "KELSO"), the Selling
Stockholder and the other parties thereto (the "PURCHASE AGREEMENT").
B. The Selling Stockholder will receive significant consideration
as a result of THL's acquisition of his capital stock in the Company.
C. The Selling Stockholder has had access to nonpublic,
confidential and proprietary information concerning the business and operations
of the Company and its subsidiaries, and the Selling Stockholder is capable of
utilizing such nonpublic, confidential and proprietary information to compete
with the Company and its subsidiaries and, as a result, could cause significant
harm to the Company and its subsidiaries.
D. THL and Kelso are making a significant investment in the
Company and its subsidiaries and such investment is contingent upon protecting
the entire goodwill and going business value inherent in the value of the shares
which they are acquiring from the significant harm that could be caused to the
Company and its subsidiaries by such competition from the Selling Stockholder
using such nonpublic, confidential and proprietary information.
E. The Company and the Selling Stockholder are entering into this
Agreement for the purpose of preserving the proprietary rights, going business
value and entire goodwill of the Company and its subsidiaries by ensuring that
the Selling Stockholder does not use any of such nonpublic, confidential and
proprietary information to directly or indirectly compete with the Company and
its subsidiaries for the period hereinafter set forth, and acknowledge that
execution of this Agreement is necessary to enable THL and Kelso to capture all
of the goodwill and going business value presently inherent in the Company's
capital stock.
<PAGE>
F. In order to preserve the entire goodwill and going business
value of the Company, this Agreement must protect the Company from such
competition in all jurisdictions in which the Company currently does business or
plans to do business, which are those cities with populations of less than
250,000 in the states of Alabama, Colorado, Connecticut, Florida, Georgia,
Illinois, Kansas, Maine, Maryland, Massachusetts, Mississippi, New Hampshire,
New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota,
Texas, Vermont, Virginia, Washington and West Virginia.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Selling Stockholder hereby covenant and agree
as follows:
1. DEFINITIONS. In addition to the other terms defined elsewhere
in this Agreement, unless the context shall expressly or by necessary
implication indicate to the contrary, the following terms, as used herein, shall
have the following meanings:
"LINES OF BUSINESS" means the ownership, management or
operation of telephone companies or other access providers, including, but not
limited to, any production, marketing, promotion or sales related thereto.
"PERSON" means any individual, partnership, firm, corporation,
limited liability company, association, trust, unincorporated organization or
other entity.
"RESTRICTED PERIOD" means the period commencing on the date
hereof and ending five years after the date hereof.
"RESTRICTED TERRITORIES" means those cities with populations
of less than 250,000 in the states of Alabama, Colorado, Connecticut, Florida,
Georgia, Illinois, Kansas, Maine, Maryland, Massachusetts, Mississippi, New
Hampshire, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South
Dakota, Texas, Vermont, Virginia, Washington and West Virginia.
2. NON-COMPETITION. During the Restricted Period, the Selling
Stockholder and its affiliates shall not, directly or indirectly, either
individually or acting in concert or as an advisor, representative, agent,
employee, partner, shareholder, investor, lender, lessor, director, consultant
or in any other capacity on behalf of any other Person, participate or engage
in, or assist others in participating or engaging in, the Lines of Business in
the Restricted Territories; PROVIDED, HOWEVER, nothing herein shall prohibit the
Selling Stockholder from (i) holding shares in a corporation engaging in the
Lines of Business in the Restricted Territories so long as such shares, in the
aggregate, represent less than 50% of the issued and outstanding capital stock
of such corporation and the Selling Stockholder is not an officer or director of
such corporation or (ii) having any role
2
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(whether ownership, employment, or otherwise) in a corporation that generates
less than 15% of its total revenue in the Lines of Business in the Restricted
Territories.
3. NON-SOLICITATION. During the Restricted Period, the Selling
Stockholder and its affiliates shall not directly or indirectly, either
individually or acting in concert or as an advisor, representative, agent,
employee, partner, shareholder, investor, lender, director, consultant or in any
other capacity on behalf of any other Person, (i) with respect to the Lines of
Business, request, induce or attempt to influence any distributor or supplier of
goods or services to the Company or any of its subsidiaries to curtail, cancel
or refrain from increasing the amount or type of business such distributor or
supplier of goods or services is currently transacting, or transacts during the
Restricted Period, with the Company or its subsidiaries; (ii) solicit any
customer of the Company or any of its subsidiaries with whom the Company or any
of its subsidiaries has had any dealings for the purpose of soliciting business
to sell or otherwise provide to such customer or any other customer of the
Company or any of its subsidiaries any product or service included in the Lines
of Business, and in furtherance thereof, the Selling Stockholder, individually
or as an advisor, representative, agent, employee, partner, shareholder,
investor, lender, director, consultant or in any other capacity on behalf of any
other Person, shall not attempt in any manner to solicit and/or otherwise
persuade or induce any such customer of the Company or any of its subsidiaries
to cease to do business, reduce the amount of business which any such customer
has customarily done or contemplated doing or refrain from increasing the amount
of business with the Company and its subsidiaries ; (iii) except for
advertisements in generally available publications, solicit for employment any
individual who is an employee, agent or representative of the Company or any of
its subsidiaries as of the date hereof or any time during the Restricted Period;
or (iv) except for advertisements in generally available publications, influence
or attempt to influence any employee of the Company or any of its subsidiaries
to terminate his or her employment.
4. NON-DISCLOSURE OF CONFIDENTIAL OR PROPRIETARY INFORMATION. The
Selling Stockholder acknowledges that, as a result of his association with the
Company including, without limitation, the ownership of shares of capital stock
of the Company, and his employment by the Company, the Selling Stockholder has
acquired confidential or proprietary information of special value to the Company
and its subsidiaries, and the Selling Stockholder covenants and agrees that the
Selling Stockholder and its affiliates shall not during the Restricted Period
directly or indirectly disclose any confidential or proprietary information of
the Company or any of its subsidiaries to any Person, except with the prior
written permission of the Company. For purposes of this Section 4, the term
"CONFIDENTIAL OR PROPRIETARY INFORMATION" means any and all information which
relates to matters such as, but not necessarily limited to, trade secrets,
research and development activities, books and records, customer lists,
suppliers, distribution channels, pricing information and private processes as
they may exist from time to time which the Selling Stockholder has obtained or
had disclosed to it as a result of its past association with the Company and its
subsidiaries. This Section 4 shall not be violated by disclosure of information
which (i) at the time of disclosure is publicly available through no act or
omission by the Selling Stockholder or any of its affiliates or (ii) is
disclosed pursuant to a court order or as otherwise required by law, on
condition that notice of the requirement for such disclosure is given to the
Company prior to the Selling Stockholder
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making or permitting any such disclosure and that the Selling Stockholder shall
cooperate in such manner as the Company may reasonably request in resisting such
disclosure.
5. REMEDIES. The Selling Stockholder acknowledges and agrees that
any breach of this Agreement will cause irreparable harm to the Company and/or
its subsidiaries and cannot be remedied solely by the recovery of damages.
Therefore, in the event of a breach by the Selling Stockholder or any of its
affiliates of this Agreement, the Company shall, in addition to any other
remedies it may have at law or in equity (including without limitation damages
or action for accounting or restitution) be entitled to an injunction and/or
restraining order from any court of competent jurisdiction. The election of any
remedy, at law or in equity, by the Company shall not be to the exclusion of any
other remedy then available to the Company and any and all such remedies shall
be cumulative.
6. JUDICIAL AMENDMENTS; SEVERABILITY. The parties agree and
intend that the covenants contained in this Agreement shall be construed as a
series of separate covenants, one for each applicable state or county. Except
for geographic coverage, each such separate covenant shall be deemed identical
in terms. It is expressly understood and agreed that, although the Company and
the Selling Stockholder consider the restrictions contained in this Agreement to
be reasonable for the purpose of preserving for the benefit of the Company and
its subsidiaries the proprietary rights, going business value and goodwill of
the Company and its subsidiaries, if a court of competent jurisdiction holds or
deems that any of the separate covenants contained in this Agreement is
unenforceable against the Selling Stockholder or any of its affiliates in
respect of a specific geographic area, then such unenforceable covenant shall be
deemed eliminated from this Agreement for the purpose of such proceedings to the
extent necessary to permit the remaining separate covenants to be enforced, and
such holding or determination shall not affect the enforceability of any of the
other separate covenants contained herein. If the court referred to above holds
or determines that any covenant or restriction contained in this Agreement is
unenforceable for any other reason, then the provisions of such covenant shall
not be rendered void but shall be deemed reduced or otherwise amended to the
extent such court may judicially determine or indicate to be reasonable and so
as to provide the Company and its subsidiaries, to the fullest extent permitted
by applicable law, the benefits intended by this Agreement.
7. ASSIGNMENT. The rights and obligations of the Company and its
subsidiaries hereunder shall inure to the benefit of, and be binding upon, their
successors and assigns. The Selling Stockholder may not delegate or assign his
obligations hereunder.
8. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when (i) delivered by
hand, (ii) transmitted by prepaid telex or telecopier, provided that a copy is
sent at about the same time by registered mail, return receipt requested, or
(iii) received by the addressee, if sent by Express Mail, Federal Express, or
other express delivery service to the addressee at the following addresses or
telecopier numbers (or to such other address or telecopier number as a party may
specify by notice given to the other party pursuant to this provision):
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If to the Selling Stockholder, to:
Interquest, Inc.
599 Park Avenue
New York, New York
Fax: (212) 703-0596
Attention: Meyer Haberman
If to the Company, to:
MJD Communications, Inc.
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
Fax: (704) 344-8121
Attention: Walter E. Leach, Jr.
with copies to:
Thomas H. Lee Partners, L.P.
75 State Street
Boston, Massachusetts 02109
Fax: (617) 227-3514
Attention: Anthony J. DiNovi
Kent R. Weldon
and
Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
Fax: (212) 751-3939
Attention: James J. Connors, II, Esq.
9. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument, but
all of which taken together shall constitute one agreement.
10. NO WAIVER. The failure of the Company to insist, in any
one or more instances, upon the strict performance of the terms and conditions
of this Agreement shall not be construed as a waiver or relinquishment of any
right hereunder nor of the future performance of any such terms and conditions.
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11. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without giving
effect to any choice or conflict of law provision or rule (whether of the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York.
12. IMPORTANCE OF THIS AGREEMENT. It is understood by and
between the Company and the Selling Stockholder that the provisions of this
Agreement are an essential element and material inducement of THL's and Kelso's
agreement to purchase shares of capital stock of the Company and the Company's
redemption of shares of capital stock from the Selling Stockholder, and that,
but for this Agreement, the Company would not have entered into the Redemption
Agreement or consummated the transactions contemplated thereby or by the
Purchase Agreement and Kelso and THL would not have entered into the Purchase
Agreement. The Company and the Selling Stockholder acknowledge that the Line of
Business and Restricted Territory accurately depict the scope of the Company's
and its subsidiaries' business and that the Line of Business, Restricted
Territory and Restricted Period contained herein are reasonable, and the Selling
Stockholder represents and warrants that he will suffer no hardship as a result
of the specific enforcement of this Agreement.
* * * * *
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IN WITNESS WHEREOF, the parties have executed this
Non-Competition, Non- Solicitation and Non-Disclosure Agreement as of the day
and year first written above.
MJD COMMUNICATIONS, INC.
By: /s/ Walter E. Leach, Jr.
--------------------------------
Its: SVP & CFO
--------------------------------
/s/ Meyer Haberman
-------------------------------------
MEYER HABERMAN
<PAGE>
Exhibit 10.32
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement") made as of this 31st
day of January, 2000 between MJD Communications, Inc., a Delaware corporation
with its principal offices at Morehead Place, 521 East Morehead Street, Suite
250, Charlotte, North Carolina 28202 (the "Company") and the undersigned members
of the management of the Company and/or its subsidiaries listed on Schedule A
attached hereto (the "Subscribers").
W I T N E S S E T H :
WHEREAS, the Company desires to issue, in the aggregate, the
number of shares of the Company's Class A Voting Common Stock, $0.01 par value,
set forth on Schedule A attached hereto (the "Shares") to the Subscribers on the
terms and conditions hereinafter set forth and each Subscriber desires to
acquire that number of Shares set forth on the signature page hereof and
Schedule A attached hereto;
NOW, THEREFORE, for and in consideration of the premises and the
mutual representations and covenants hereinafter set forth, the parties hereto
do hereby agree as follows:
I. SUBSCRIPTION FOR COMMON STOCK AND
REPRESENTATIONS BY SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth,
each Subscriber hereby subscribes for and agrees to purchase from the Company
for such Subscriber's own account such number of Shares as is set forth upon the
signature page hereof and Schedule A attached hereto at a price equal to $262.33
per Share and the Company agrees to sell such Shares to the Subscribers for said
purchase price. The purchase price is payable by wire transfer of cash or
certified or cashier's check made payable to the Company, contemporaneously with
the execution and delivery of this Agreement. The certificates for the Shares
will be delivered by the Company within five (5) business days following the
closing of this transaction.
1.2 Each Subscriber represents that (i) such Subscriber is able
to bear the economic risk of holding the Shares for an indefinite period and
(ii) such Subscriber can afford to suffer the complete loss of his investment in
the Shares.
<PAGE>
1.3 Each Subscriber acknowledges that such Subscriber has prior
investment experience, including investment in non-listed and non-registered
securities, or that such Subscriber has employed the services of an investment
advisor, attorney and/or accountant to read all of the documents furnished or
made available by the Company both to such Subscriber and to all other
prospective investors in the Shares and to evaluate the merits and risks of such
an investment on such Subscriber's behalf; that such Subscriber recognizes the
highly speculative nature of this investment; and that such Subscriber is able
to bear the economic risk such Subscriber hereby assumes.
1.4 Each Subscriber hereby represents that such Subscriber has
been furnished by the Company during the course of this transaction with all
information regarding the Company which such Subscriber had requested or desired
to know; that all documents which could be reasonably provided have been made
available for such Subscriber's inspection and review; that such Subscriber has
been afforded the opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the Company concerning the terms
and conditions of this investment, and any additional information which such
Subscriber had requested.
1.5 Each Subscriber hereby acknowledges that the terms and
conditions of this transaction have not been reviewed by the United States
Securities and Exchange Commission (the "Commission") or any state regulatory
authority, since the transaction is intended to be a nonpublic transaction
pursuant to Regulation D promulgated under the Securities Act of 1933, as
amended (the "Act"). Each Subscriber represents that the Shares being purchased
by such Subscriber are being purchased for such Subscriber's own account, for
investment and not for distribution or resale to others. Each Subscriber agrees
that such Subscriber will not sell or otherwise transfer the Shares unless they
are registered under the Act or unless an exemption from such registration is
available.
1.6 Each Subscriber understands that the Shares have not been
registered under the Act or any state securities or "blue sky" laws by reason of
claimed exemptions under the provisions thereof which depend, in part, upon such
Subscriber's investment intention and related representations, warranties and
agreements made herein. In this connection, each Subscriber understands that it
is the position of the Commission and state regulatory authorities that the
statutory basis for such exemptions would not be present if such Subscriber's
representation merely meant that such Subscriber's present intention was to hold
the Shares for a short period, such as the capital gains period of tax statutes,
for a deferred sale, for a market rise, assuming that a market develops, or for
any other fixed period. Each Subscriber realizes that, in the view of the
Commission and state regulatory authorities, a purchase now with an intent to
resell would represent a purchase with an intent inconsistent with such
Subscriber's representation to the Company, and the Commission and such state
regulatory authorities might regard such a sale or disposition as a deferred
sale for which the exemption is not available.
2
<PAGE>
1.7 Each Subscriber understands that there is no market for the
Shares and that no market is expected to develop for the Shares. Each Subscriber
understands and hereby acknowledges that the Company is under no obligation to
register the Shares under the Act or any state securities or "blue sky" laws.
Each Subscriber consents that the Company may, if it desires, permit the
transfer of the Shares, out of such Subscriber's name only when such
Subscriber's request for transfer is accompanied by an opinion of counsel
reasonably satisfactory to the Company that neither the sale nor the proposed
transfer results in a violation of the Act or any applicable state securities or
"blue sky" laws and only if such transfer is in compliance with the
Stockholders' Agreement, dated as of January 20, 2000, among the Company, Thomas
H. Lee Equity Fund IV, L.P., Kelso Investment Associates V, L.P., Kelso Equity
Partners V, L.P., the Subscriber and the various other stockholders party
thereto (the "Stockholders' Agreement"). Each Subscriber agrees to hold the
Company and its affiliates and their respective directors, officers, controlling
persons, heirs, representatives, successors and assigns harmless and to
indemnify them against all liabilities, costs and expenses incurred by them as a
result of any sale or distribution by the undersigned Subscriber in violation of
the Act, any applicable state securities or "blue sky" laws or the Stockholders'
Agreement.
1.8 Each Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Shares, stating that such Shares
have not been registered under the Act or any state securities or "blue sky"
laws and setting forth or referring to the restrictions on transferability and
sale thereof including without limitation those set forth in the Stockholders'
Agreement. Each Subscriber is aware that the Company will make a notation in its
appropriate records with respect to the restrictions on the transferability of
such Shares.
1.9 Each Subscriber represents and warrants that (i) such
Subscriber has duly executed and delivered this Agreement; (ii) this Agreement
constitutes and, upon execution thereof, the Stockholders' Agreement, will
constitute such Subscriber's legal, valid and binding obligations, enforceable
against such Subscriber in accordance with their respective terms, (iii) the
execution, delivery and performance of this Agreement and the Stockholders'
Agreement will not conflict with or result in the breach or termination of, or
constitute a default under, any lease, agreement, commitment or other
instrument, or any order, judgment or decree to which such Subscriber is a party
or by which such Subscriber is bound, (iv) no consent, approval, authorization,
order, filing, registration or qualification of or with any court, governmental
authority or third person is required to be obtained by such Subscriber in
connection with the execution and delivery of this Agreement or the
Stockholders' Agreement or the performance of such Subscriber's obligations
hereunder or thereunder and (v) such Subscriber is a resident of the state set
forth below such Subscriber's signature on the signature page attached hereto.
3
<PAGE>
II. REPRESENTATIONS OF THE COMPANY
2.1 The Company represents and warrants to each Subscriber as
follows:
(a) The Company is a corporation duly organized, existing and in
good standing under the laws of the State of Delaware and has the corporate
power to conduct the business which it proposes to conduct;
(b) the execution, delivery and performance of this Agreement by
the Company will have been duly approved by the Board of Directors of the
Company and all other actions required to authorize and effect the sale of the
Shares will have been duly taken and approved; and
(c) the Shares purchased pursuant hereto have been duly and
validly authorized and when issued and paid for in accordance with the terms
hereof, will be duly and validly issued, fully paid and nonassessable.
III. MISCELLANEOUS
3.1 Any notice or other communication given hereunder shall be
deemed sufficient if in writing and sent by registered or certified mail, return
receipt requested, or delivered by hand against written receipt therefor,
addressed to the Company, at its office, Morehead Place, 521 East Morehead
Street, Suite 250, Charlotte, North Carolina 28202, Attention: Walter E. Leach,
Jr. and to the Subscribers at their respective addresses indicated on the
signature page of this Agreement. Notices shall be deemed to have been given on
the date of mailing, except notices of change of address, which shall be deemed
to have been given when received.
3.2 This Agreement shall not be changed, modified or amended
except by a writing signed by the parties to be charged, and this Agreement may
not be discharged except by performance in accordance with its terms or by a
writing signed by the party to be charged.
3.3 This Agreement shall be binding upon and inure to the benefit
of the parties hereto and to their respective heirs, legal representatives,
successors and assigns. This Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter thereof and merges
and supersedes all prior discussions, agreements and understandings of any and
every nature among them.
3.4 Upon the execution and delivery of this Agreement by the
Subscribers, this Agreement shall become a binding obligation of the Subscribers
with
4
<PAGE>
respect to the purchase of the Shares as herein provided; subject, however, to
the right hereby reserved to the Company to enter into the same agreements with
other subscribers and to add and/or delete other persons as subscribers.
3.5 Notwithstanding the place where this Agreement may be
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be construed in accordance with and governed
by the laws of the State of New York, without regard to principles of conflicts
of law.
3.6 The parties hereby waive trial by jury in any action or
proceeding involving, directly or indirectly, any matter (whether sounding in
tort, contract, fraud or otherwise) in any way arising out of or in connection
with this Agreement or the Shares issued hereunder.
3.7 The holding of any provision of this Agreement to be invalid
or unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
3.8 It is agreed that a waiver by any party of a breach of any
provision of this Agreement shall not operate, or be construed, as a waiver of
any subsequent breach by that same party.
3.9 The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Agreement.
3.10 This Agreement may be executed in one or more counterparts
each of which shall be deemed an original, but all of which shall together
constitute one and the same instrument.
3.11 By execution of this Agreement, each Subscriber agrees to be
bound by the terms of the Stockholders' Agreement as a "Management Stockholder"
as required by Section 11 of the Stockholders' Agreement. Each Subscriber
represents and warrants that it has delivered a duly executed Spousal Waiver to
the Company to the extent required by the Stockholders' Agreement or is not
required to deliver such Spousal Waiver under the terms of the Stockholders'
Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first set forth above.
MJD COMMUNICATIONS, INC.
By: /s/ Walter E. Leach, Jr.
-----------------------------------
Name: Walter E. Leach, Jr.
Title: Senior Vice President,
Chief Financial Officer
and Secretary
ACCEPTED AND AGREED:
[Counterparts of this page were executed by all parties listed on Schedule A
hereto]
- --------------------------------------
Signature of Subscriber
- --------------------------------------
Name of Subscriber
- --------------------------------------
Address of Subscriber
- --------------------------------------
Social Security or Taxpayer
Identification Number of Subscriber
- --------------------------------------
Number of shares of Common Stock
to be Subscribed For
6
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number Of Shares
Subscriber To Be Purchased
- ---------- ---------------
<S> <C>
Richard Blumhagen 40
Brady Buckley 382
Ryan Cure 80
Whit Edwards 400
Pat Eudy 285
Dan Fine 80
Leon Frazier 55
Ross Fritz 40
Bob Gnaidek 40
Mike Harrington 40
Tim Henry 40
Lisa Hood 40
Tom Iachetta 40
Steve Lagasse 40
Jack Morfield 100
Pat Morse 100
Peter Nixon 160
Neil Torpey 880
City National Bank, Trustee, for the
benefit Neil Torpey 851
Jeff Tousa 100
Dana Twombly 1000
Brown Brothers Harriman Trust Co.
for the benefit of Dana E. Twombly,
GST exempt 100
Daniel Yamin 40
Darien Yamin 40
</TABLE>
<PAGE>
Exhibit 10.33
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of January 20, 2000, by and between MJD COMMUNICATIONS INC., a Delaware
corporation (together with its successors and assigns permitted hereunder, the
"Company"), and JACK H. THOMAS (the "Executive").
RECITALS:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its subsidiaries
and stockholders to enter into this Agreement for purposes of the Company
employing the Executive on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the respective agreements and
covenants set forth herein and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. EMPLOYMENT PERIOD. Subject to Section 3, the Company hereby agrees
to employ the Executive, and the Executive hereby agrees to be employed by the
Company in accordance with the terms and provisions of this Agreement, for a
period (the "Employment Period") commencing on the date hereof and ending on
December 31, 2003. In the event the Executive continues to perform services
after the Employment Period, and pending agreement for extension of the
Employment Agreement, such services shall constitute employment for an
unspecified term, terminable at will, with or without cause or reason, with or
without advance notice, and with or without pay in lieu of advance notice.
2. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the term of the Executive's employment, the
Executive shall serve as Chief Executive Officer of the Company and, in so
doing, shall perform normal duties and responsibilities associated with such
position, subject to the general direction, approval and control of the Board of
Directors of the Company.
(ii) During the term of the Executive's employment, and
excluding any periods of vacation and other leave to which the Executive is
entitled, the Executive agrees to devote substantially all his business time to
the business and affairs of the Company and to use the
<PAGE>
Executive's best efforts to perform faithfully, effectively and efficiently his
duties and responsibilities.
(iii) During the term of the Executive's employment it
shall not be a violation of this Agreement for the Executive to (1) serve on
industry trade, civic or charitable boards or committees, (2) deliver lectures
or fulfill speaking engagements, and (3) manage personal investments, so long as
such activities do not interfere with the performance of the Executive's duties
and responsibilities as an employee of the Company.
(iv) Executive agrees to observe and comply with the
Company's rules and policies as adopted by the Company from time to time.
(b) COMPENSATION.
(i) BASE SALARY. During the term of the Executive's
employment, the Executive shall receive an annual base salary (the "Annual Base
Salary"), which shall be paid in accordance with the customary payroll practices
of the Company, in an amount to be determined by the Board.
(ii) BONUS. Executive shall receive an annual bonus in an
amount to be determined by the Board.
(iii) INCENTIVE SAVINGS, STOCK OPTION AND RETIREMENT
PLANS. During the term of the Executive's employment, the Executive shall be
entitled to participate in all incentive, savings stock option and retirement
plans, practices, policies and programs applicable generally to other employees
of the Company, as amended from time to time. In addition, the Executive shall
be entitled to participate in the MJD Communications, Inc. Nonqualified Deferred
Compensation Plan.
(iv) WELFARE BENEFIT PLANS. During the term of the
Executive's employment, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive all benefits
under the welfare benefit plans, practices, policies and programs provided by
the Company, including medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs, as amended from time to time, to the extent
applicable generally to other employees of the Company. In addition, the
Executive shall be entitled to payment of long term disability and term life
insurance premiums in an amount not to exceed $12,000 in the aggregate annually.
(v) PERQUISITES. During the term of the Executive's
employment, the Executive shall be entitled to receive, in addition to the
benefits described above, such perquisites and fringe benefits appertaining to
his position in accordance with any policies, practices and procedures
established by the Board, as amended from time to time, including, without
limitation reimbursement for automobile (import luxury or equivalent) expenses.
2
<PAGE>
(vi) EXPENSES. During the term of the Executive's
employment, the Executive shall be entitled to receive prompt reimbursement for
all reasonable employment expenses incurred by the Executive in accordance with
the Company's policies, practices and procedures, as amended from time to time.
3. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Disability (as defined below) of the Executive has occurred during the
Employment Period, the Company may give to the Executive written notice in
accordance with Section 11(b) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 90th day after receipt of such notice by the
Executive (the "Disability Effective Date"), if, within the 90 days after such
receipt, the Executive shall not have returned to perform, with reasonable
accommodation, the essential functions of his position. For purposes of this
Agreement, at any time the Company or any of its affiliates sponsors a long-term
disability plan for the Company's employees, "Disability" shall mean disability
as defined in such long-term disability plan. The determination of whether the
Executive has a Disability shall be made by the person or persons required to
render disability determinations under the long-term disability plan. At any
time the Company does not sponsor a long-term disability plan for its employees,
"Disability" shall mean the Executive's inability to perform, with reasonable
accommodation, the essential functions of his position hereunder for a period of
180 consecutive days due to mental or physical incapacity, as determined by a
physician selected by the Company or its insurers.
(b) CAUSE OR WITHOUT CAUSE. The Company may terminate the
Executive's employment during the Employment Period for Cause or without Cause.
For purposes of this Agreement, "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) the willful
taking of actions which directly impair the Employee's ability to perform the
duties required by the terms of his employment; or (ii) 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; or (e) any material
intentional failure to comply with applicable laws or governmental regulations
within the scope of employment as defined by this Agreement. For purposes of
this Agreement, "without Cause" shall mean a termination by the Company of the
Executive's employment during the Employment Period for any reason other than a
termination based upon Cause, death, Disability or upon a Change of Control, as
defined below.
3
<PAGE>
(c) CHANGE OF CONTROL. If a Change of Control (as defined
below) occurs during the Employment Period and the Board determines in good
faith that it is in the Company's best interests to terminate the Executive's
employment with the Company within one year of such Change of Control the
Company may terminate the Executive's employment by giving the Executive written
notice in accordance with Section 11(b) of its intention to terminate the
Executive's employment. Any such termination by the Company as contemplated in
this Section 3(d) is referred to herein as a termination "upon a Change of
Control."
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 (after giving effect to the transactions contemplated by the Stock
Purchase Agreement; dated as of the date hereof, by and among the Company and
the other Parties thereto) 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.
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause or without Cause or upon a Change of Control, shall be communicated by a
Notice of Termination to the Executive hereto given in accordance with Section
11(b). For purposes of this Agreement, the term "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall not be more than 15
days after the giving of such notice if the Executive is giving such notice).
The failure by the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Cause or a termination upon a
Change of Control shall not waive any right of the Company hereunder or preclude
the Company from asserting such fact or circumstance in enforcing the Company's
rights hereunder.
(e) DATE OF TERMINATION. The term "Date of Termination" means (i)
if the Executive's employment is terminated by the Company for Cause or upon a
Change of Control, the date of receipt of the Notice of Termination or any later
date specified therein pursuant to Section 3(e), as the case may be, (ii) if the
Executive's employment is terminated by the Executive 30 days from the date of
receipt of the Notice of Termination, (iii) if the Executive's employment is
terminated by the Company other than for Cause or upon a Change of Control, the
date on which the Company notifies the Executive of such termination and (iv) if
the Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability, as the case may be.
4
<PAGE>
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) FOR CAUSE; WITHOUT GOOD REASON; OTHER THAN FOR DEATH,
DISABILITY OR UPON A CHANGE OF CONTROL. If, during the Employment Period, the
Company shall terminate the Executive's employment for Cause, the Executive
shall not be entitled to any benefits pursuant to this Agreement.
(b) WITHOUT CAUSE. In the event that the Executive's
employment as 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 the Company, an amount equal to
the Executive's Annual 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, 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.
(c) CHANGE OF CONTROL. In the event that the Company
terminates the Executive's employment as Chief Executive Officer 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 Annual
Base Salary as of the Date of Termination for a period of twenty-four (24)
months. In addition, the Company shall maintain the Executive's long term
disability and medical benefits for a period of twenty-four (24) months
following the Date of Termination.
5. 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.
6. 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 regarding
the subject matter hereof. Any previous agreements or understandings
between the parties regarding the subject matter hereof are merged into
and superseded by this Agreement. All representations, warranties,
5
<PAGE>
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 Executive. 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):
(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:
Jack H. Thomas
18800 Peninsula Cove Lane
Cornelius, North Carolina 28031
Facsimile: (704) 333-1200
6
<PAGE>
(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 between the Company or
any of its affiliates and the Executive.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
<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.
/s/ Jack H. Thomas By: /s/ Walter E. Leach, Jr.
- --------------------------------- ----------------------------------
Jack H. Thomas Name: Walter E. Leach, Jr.
Title: Senior VP & CFO
8
<PAGE>
Exhibit 10.34
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of January 20, 2000, by and between MJD COMMUNICATIONS INC., a Delaware
corporation (together with its successors and assigns permitted hereunder, the
"Company"), and EUGENE B. JOHNSON (the "Executive").
RECITALS:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its subsidiaries
and stockholders to enter into this Agreement for purposes of the Company
employing the Executive on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the respective agreements and
covenants set forth herein and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. EMPLOYMENT PERIOD. Subject to Section 3, the Company hereby agrees
to employ the Executive, and the Executive hereby agrees to be employed by the
Company in accordance with the terms and provisions of this Agreement, for a
period (the "Employment Period") commencing on the date hereof and ending on
December 31, 2003. In the event the Executive continues to perform services
after the Employment Period, and pending agreement for extension of the
Employment Agreement, such services shall constitute employment for an
unspecified term, terminable at will, with or without cause or reason, with or
without advance notice, and with or without pay in lieu of advance notice.
2. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the term of the Executive's employment,
the Executive shall serve as Executive Vice President of the Company and, in so
doing, shall perform normal duties and responsibilities associated with such
position, subject to the general direction, approval and control of the Chief
Executive Officer of the Company.
(ii) During the term of the Executive's employment,
and excluding any periods of vacation and other leave to which the Executive is
entitled, the Executive agrees to devote substantially all his business time to
the business and affairs of the Company and to use the
<PAGE>
Executive's best efforts to perform faithfully, effectively and efficiently his
duties and responsibilities.
(iii) During the term of the Executive's employment
it shall not be a violation of this Agreement for the Executive to (1) serve on
industry trade, civic or charitable boards or committees, (2) deliver lectures
or fulfill speaking engagements, and (3) manage personal investments, so long as
such activities do not interfere with the performance of the Executive's duties
and responsibilities as an employee of the Company.
(iv) Executive agrees to observe and comply with the
Company's rules and policies as adopted by the Company from time to time.
(b) COMPENSATION.
(i) BASE SALARY. During the term of the Executive's
employment, the Executive shall receive an annual base salary (the "Annual Base
Salary"), which shall be paid in accordance with the customary payroll practices
of the Company, in an amount to be determined by the Board.
(ii) BONUS. Executive shall receive an annual bonus
in an amount to be determined by the Board.
(iii) INCENTIVE SAVINGS, STOCK OPTION AND RETIREMENT
PLANS. During the term of the Executive's employment, the Executive shall be
entitled to participate in all incentive, savings stock option and retirement
plans, practices, policies and programs applicable generally to other employees
of the Company, as amended from time to time. In addition, the Executive shall
be entitled to participate in the MJD Communications, Inc. Nonqualified Deferred
Compensation Plan.
(iv) WELFARE BENEFIT PLANS. During the term of the
Executive's employment, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive all benefits
under the welfare benefit plans, practices, policies and programs provided by
the Company, including medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs, as amended from time to time, to the extent
applicable generally to other employees of the Company. In addition, the
Executive shall be entitled to payment of long term disability and term life
insurance premiums in an amount not to exceed $7,000 in the aggregate annually.
(v) PERQUISITES. During the term of the Executive's
employment, the Executive shall be entitled to receive, in addition to the
benefits described above, such perquisites and fringe benefits appertaining to
his position in accordance with any policies, practices and procedures
established by the Board, as amended from time to time, including, without
limitation reimbursement for automobile (import luxury or equivalent) expenses.
2
<PAGE>
(vi) EXPENSES. During the term of the Executive's
employment, the Executive shall be entitled to receive prompt reimbursement for
all reasonable employment expenses incurred by the Executive in accordance with
the Company's policies, practices and procedures, as amended from time to time.
3. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Disability (as defined below) of the Executive has occurred during the
Employment Period, the Company may give to the Executive written notice in
accordance with Section 11(b) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 90th day after receipt of such notice by the
Executive (the "Disability Effective Date"), if, within the 90 days after such
receipt, the Executive shall not have returned to perform, with reasonable
accommodation, the essential functions of his position. For purposes of this
Agreement, at any time the Company or any of its affiliates sponsors a long-term
disability plan for the Company's employees, "Disability" shall mean disability
as defined in such long-term disability plan. The determination of whether the
Executive has a Disability shall be made by the person or persons required to
render disability determinations under the long-term disability plan. At any
time the Company does not sponsor a long-term disability plan for its employees,
"Disability" shall mean the Executive's inability to perform, with reasonable
accommodation, the essential functions of his position hereunder for a period of
180 consecutive days due to mental or physical incapacity, as determined by a
physician selected by the Company or its insurers.
(b) CAUSE OR WITHOUT CAUSE. The Company may terminate the
Executive's employment during the Employment Period for Cause or without Cause.
For purposes of this Agreement, "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) the willful
taking of actions which directly impair the Employee's ability to perform the
duties required by the terms of his employment; or (ii) 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; or (e) any material
intentional failure to comply with applicable laws or governmental regulations
within the scope of employment as defined by this Agreement. For purposes of
this Agreement, "without Cause" shall mean a termination by the Company of the
Executive's employment during the Employment Period for any reason other than a
termination based upon Cause, death, Disability or upon a Change of Control, as
defined below.
3
<PAGE>
(c) CHANGE OF CONTROL. If a Change of Control (as defined
below) occurs during the Employment Period and the Board determines in good
faith that it is in the Company's best interests to terminate the Executive's
employment with the Company within one year of such Change of Control the
Company may terminate the Executive's employment by giving the January 19,
2000Executive written notice in accordance with Section 11(b) of its intention
to terminate the Executive's employment. Any such termination by the Company as
contemplated in this Section 3(d) is referred to herein as a termination "upon a
Change of Control."
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 (after giving effect to the transactions contemplated by the Stock
Purchase Agreement; dated as of the date hereof, by and among the Company and
the other Parties thereto) 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.
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause or without Cause or upon a Change of Control, shall be communicated by a
Notice of Termination to the Executive hereto given in accordance with Section
11(b). For purposes of this Agreement, the term "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall not be more than 15
days after the giving of such notice if the Executive is giving such notice).
The failure by the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Cause or a termination upon a
Change of Control shall not waive any right of the Company hereunder or preclude
the Company from asserting such fact or circumstance in enforcing the Company's
rights hereunder.
(e) DATE OF TERMINATION. The term "Date of Termination" means
(i) if the Executive's employment is terminated by the Company for Cause or upon
a Change of Control, the date of receipt of the Notice of Termination or any
later date specified therein pursuant to Section 3(e), as the case may be, (ii)
if the Executive's employment is terminated by the Executive 30 days from the
date of receipt of the Notice of Termination, (iii) if the Executive's
employment is terminated by the Company other than for Cause or upon a Change of
Control, the date on which the Company notifies the Executive of such
termination and (iv) if the Executive's employment is terminated by reason of
death or Disability, the date of death of the Executive or the Disability, as
the case may be.
4
<PAGE>
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) FOR CAUSE; WITHOUT GOOD REASON; OTHER THAN FOR DEATH,
DISABILITY OR UPON A CHANGE OF CONTROL. If, during the Employment Period, the
Company shall terminate the Executive's employment for Cause, the Executive
shall not be entitled to any benefits pursuant to this Agreement.
(b) WITHOUT CAUSE. In the event that the Executive's
employment as Executive 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 the Company, an amount equal to
the Executive's Annual 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, the Company shall maintain the Executive's
long term disability and medical benefits for a period of nine (9) months
following the Date of Termination.
(c) CHANGE OF CONTROL. In the event that the Company
terminates the Executive's employment as Executive Vice President 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 Annual
Base Salary as of the Date of Termination for a period of (18) months. In
addition, the Company shall maintain the Executive's long term disability and
medical benefits for a period of eighteen (18) months following the Date of
Termination.
5. 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.
6. 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
regarding the subject matter hereof. Any previous agreements or
understandings between the parties regarding the subject matter hereof
are merged into and superseded by this Agreement. All representations,
warranties,
5
<PAGE>
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 Executive. 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):
(1) If to the Company to:
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
6
<PAGE>
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 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 between
the Company or any of its affiliates and the Executive.
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7
<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.
/s/ Eugene B. Johnson By: /s/ Walter E. Leach, Jr.
- ------------------------------- -----------------------------------
Eugene B. Johnson Name: Walter E. Leach, Jr.
Title: Senior VP & CFO
8
<PAGE>
Exhibit 10.35
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of January 20, 2000, by and between MJD COMMUNICATIONS INC., a Delaware
corporation (together with its successors and assigns permitted hereunder, the
"Company"), and JOHN P. DUDA (the "Executive").
RECITALS:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its subsidiaries
and stockholders to enter into this Agreement for purposes of the Company
employing the Executive on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the respective agreements and
covenants set forth herein and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. EMPLOYMENT PERIOD. Subject to Section 3, the Company hereby agrees
to employ the Executive, and the Executive hereby agrees to be employed by the
Company in accordance with the terms and provisions of this Agreement, for a
period (the "Employment Period") commencing on the date hereof and ending on
December 31, 2003. In the event the Executive continues to perform services
after the Employment Period, and pending agreement for extension of the
Employment Agreement, such services shall constitute employment for an
unspecified term, terminable at will, with or without cause or reason, with or
without advance notice, and with or without pay in lieu of advance notice.
2. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the term of the Executive's employment,
the Executive shall serve as President and Chief Executive Officer -- Telecom
Group and, in so doing, shall perform normal duties and responsibilities
associated with such position, subject to the general direction, approval and
control of the Chief Executive Officer of the Company.
(ii) During the term of the Executive's employment,
and excluding any periods of vacation and other leave to which the Executive is
entitled, the Executive agrees to devote substantially all his business time to
the business and affairs of the Company and to use the
<PAGE>
Executive's best efforts to perform faithfully, effectively and efficiently his
duties and responsibilities.
(iii) During the term of the Executive's employment
it shall not be a violation of this Agreement for the Executive to (1) serve on
industry trade, civic or charitable boards or committees, (2) deliver lectures
or fulfill speaking engagements, and (3) manage personal investments, so long as
such activities do not interfere with the performance of the Executive's duties
and responsibilities as an employee of the Company.
(iv) Executive agrees to observe and comply with the
Company's rules and policies as adopted by the Company from time to time.
(b) COMPENSATION.
(i) BASE SALARY. During the term of the Executive's
employment, the Executive shall receive an annual base salary (the "Annual Base
Salary"), which shall be paid in accordance with the customary payroll practices
of the Company, in an amount to be determined by the Board.
(ii) BONUS. Executive shall receive an annual bonus
in an amount to be determined by the Board.
(iii) INCENTIVE SAVINGS, STOCK OPTION AND RETIREMENT
PLANS. During the term of the Executive's employment, the Executive shall be
entitled to participate in all incentive, savings stock option and retirement
plans, practices, policies and programs applicable generally to other employees
of the Company, as amended from time to time. In addition, the Executive shall
be entitled to participate in the MJD Communications, Inc. Nonqualified Deferred
Compensation Plan.
(iv) WELFARE BENEFIT PLANS. During the term of the
Executive's employment, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive all benefits
under the welfare benefit plans, practices, policies and programs provided by
the Company, including medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs, as amended from time to time, to the extent
applicable generally to other employees of the Company. In addition, the
Executive shall be entitled to payment of long term disability and term life
insurance premiums in an amount not to exceed $6,000 in the aggregate annually.
(v) PERQUISITES. During the term of the Executive's
employment, the Executive shall be entitled to receive, in addition to the
benefits described above, such perquisites and fringe benefits appertaining to
his position in accordance with any policies, practices and procedures
established by the Board, as amended from time to time, including, without
limitation reimbursement for automobile (American luxury or equivalent)
expenses.
2
<PAGE>
(vi) EXPENSES. During the term of the Executive's
employment, the Executive shall be entitled to receive prompt reimbursement for
all reasonable employment expenses incurred by the Executive in accordance with
the Company's policies, practices and procedures, as amended from time to time.
3. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Disability (as defined below) of the Executive has occurred during the
Employment Period, the Company may give to the Executive written notice in
accordance with Section 11(b) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 90th day after receipt of such notice by the
Executive (the "Disability Effective Date"), if, within the 90 days after such
receipt, the Executive shall not have returned to perform, with reasonable
accommodation, the essential functions of his position. For purposes of this
Agreement, at any time the Company or any of its affiliates sponsors a long-term
disability plan for the Company's employees, "Disability" shall mean disability
as defined in such long-term disability plan. The determination of whether the
Executive has a Disability shall be made by the person or persons required to
render disability determinations under the long-term disability plan. At any
time the Company does not sponsor a long-term disability plan for its employees,
"Disability" shall mean the Executive's inability to perform, with reasonable
accommodation, the essential functions of his position hereunder for a period of
180 consecutive days due to mental or physical incapacity, as determined by a
physician selected by the Company or its insurers.
(b) CAUSE OR WITHOUT CAUSE. The Company may terminate the
Executive's employment during the Employment Period for Cause or without Cause.
For purposes of this Agreement, "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) the willful
taking of actions which directly impair the Employee's ability to perform the
duties required by the terms of his employment; or (ii) 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; or (e) any material
intentional failure to comply with applicable laws or governmental regulations
within the scope of employment as defined by this Agreement. For purposes of
this Agreement, "without Cause" shall mean a termination by the Company of the
Executive's employment during the Employment Period for any reason other than a
termination based upon Cause, death, Disability or upon a Change of Control, as
defined below.
3
<PAGE>
(c) CHANGE OF CONTROL. If a Change of Control (as defined
below) occurs during the Employment Period and the Board determines in good
faith that it is in the Company's best interests to terminate the Executive's
employment with the Company within one year of such Change of Control the
Company may terminate the Executive's employment by giving the Executive written
notice in accordance with Section 11(b) of its intention to terminate the
Executive's employment. Any such termination by the Company as contemplated in
this Section 3(d) is referred to herein as a termination "upon a Change of
Control."
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 (after giving effect to the transactions contemplated by the Stock
Purchase Agreement; dated as of the date hereof, by and among the Company and
the other Parties thereto) 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.
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause or without Cause or upon a Change of Control, shall be communicated by a
Notice of Termination to the Executive hereto given in accordance with Section
11(b). For purposes of this Agreement, the term "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall not be more than 15
days after the giving of such notice if the Executive is giving such notice).
The failure by the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Cause or a termination upon a
Change of Control shall not waive any right of the Company hereunder or preclude
the Company from asserting such fact or circumstance in enforcing the Company's
rights hereunder.
(e) DATE OF TERMINATION. The term "Date of Termination" means (i)
if the Executive's employment is terminated by the Company for Cause or upon a
Change of Control, the date of receipt of the Notice of Termination or any later
date specified therein pursuant to Section 3(e), as the case may be, (ii) if the
Executive's employment is terminated by the Executive 30 days from the date of
receipt of the Notice of Termination, (iii) if the Executive's employment is
terminated by the Company other than for Cause or upon a Change of Control, the
date on which the Company notifies the Executive of such termination and (iv) if
the Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability, as the case may be.
4
<PAGE>
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) FOR CAUSE; WITHOUT GOOD REASON; OTHER THAN FOR DEATH,
DISABILITY OR UPON A CHANGE OF CONTROL. If, during the Employment Period, the
Company shall terminate the Executive's employment for Cause, the Executive
shall not be entitled to any benefits pursuant to this Agreement.
(b) WITHOUT CAUSE. In the event that the Executive's
employment as Chief Executive Officer--Telecom Group 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 the Company,
an amount equal to the Executive's Annual 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, 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.
(c) CHANGE OF CONTROL. In the event that the Company
terminates the Executive's employment as Chief Executive Officer--Telecom Group
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 Annual Base Salary as of the Date of Termination for a period of
twenty-four (24) months. In addition, the Company shall maintain the Executive's
long term disability and medical benefits for a period of twenty-four (24)
months following the Date of Termination.
5. 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.
6. 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 regarding
the subject matter hereof. Any previous agreements or understandings
between the parties regarding the subject matter
5
<PAGE>
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 Executive. 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):
(1) If to the Company to:
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:
John P. Duda
6733 North Baltusrol Lane
Charlotte, NC 28210
6
<PAGE>
(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 between the Company or
any of its affiliates and the Executive.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
<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.
/s/ John P. Duda By: /s/ Walter E. Leach, Jr.
- ----------------------------- -----------------------------
John P. Duda Name: Walter E. Leach, Jr.
Title: Senior VP & CFO
8
<PAGE>
Exhibit 10.36
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of January 20, 2000, by and between MJD COMMUNICATIONS INC., a Delaware
corporation (together with its successors and assigns permitted hereunder, the
"Company"), and WALTER E.
LEACH, JR. (the "Executive").
RECITALS:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its subsidiaries
and stockholders to enter into this Agreement for purposes of the Company
employing the Executive on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the respective agreements and
covenants set forth herein and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. EMPLOYMENT PERIOD. Subject to Section 3, the Company hereby agrees
to employ the Executive, and the Executive hereby agrees to be employed by the
Company in accordance with the terms and provisions of this Agreement, for a
period (the "Employment Period") commencing on the date hereof and ending on
December 31, 2003. In the event the Executive continues to perform services
after the Employment Period, and pending agreement for extension of the
Employment Agreement, such services shall constitute employment for an
unspecified term, terminable at will, with or without cause or reason, with or
without advance notice, and with or without pay in lieu of advance notice.
2. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the term of the Executive's employment,
the Executive shall serve as Chief Financial Officer of the Company and, in so
doing, shall perform normal duties and responsibilities associated with such
position, subject to the general direction, approval and control of the Chief
Executive Officer of the Company.
(ii) During the term of the Executive's employment,
and excluding any periods of vacation and other leave to which the Executive is
entitled, the Executive agrees to devote substantially all his business time to
the business and affairs of the Company and to use the
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Executive's best efforts to perform faithfully, effectively and efficiently his
duties and responsibilities.
(iii) During the term of the Executive's employment
it shall not be a violation of this Agreement for the Executive to (1) serve on
industry trade, civic or charitable boards or committees, (2) deliver lectures
or fulfill speaking engagements, and (3) manage personal investments, so long as
such activities do not interfere with the performance of the Executive's duties
and responsibilities as an employee of the Company.
(iv) Executive agrees to observe and comply with the
Company's rules and policies as adopted by the Company from time to time.
(b) COMPENSATION.
(i) BASE SALARY. During the term of the Executive's
employment, the Executive shall receive an annual base salary (the "Annual Base
Salary"), which shall be paid in accordance with the customary payroll practices
of the Company, in an amount to be determined by the Board.
(ii) BONUS. Executive shall receive an annual bonus
in an amount to be determined by the Board.
(iii) INCENTIVE SAVINGS, STOCK OPTION AND RETIREMENT
PLANS. During the term of the Executive's employment, the Executive shall be
entitled to participate in all incentive, savings stock option and retirement
plans, practices, policies and programs applicable generally to other employees
of the Company, as amended from time to time. In addition, the Executive shall
be entitled to participate in the MJD Communications, Inc. Nonqualified Deferred
Compensation Plan.
(iv) WELFARE BENEFIT PLANS. During the term of the
Executive's employment, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive all benefits
under the welfare benefit plans, practices, policies and programs provided by
the Company, including medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs, as amended from time to time, to the extent
applicable generally to other employees of the Company. In addition, the
Executive shall be entitled to payment of long term disability and term life
insurance premiums in an amount not to exceed $6,000 in the aggregate annually.
(v) PERQUISITES. During the term of the Executive's
employment, the Executive shall be entitled to receive, in addition to the
benefits described above, such perquisites and fringe benefits appertaining to
his position in accordance with any policies, practices and procedures
established by the Board, as amended from time to time, including, without
limitation reimbursement for automobile (American luxury or equivalent)
expenses.
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(vi) EXPENSES. During the term of the Executive's
employment, the Executive shall be entitled to receive prompt reimbursement for
all reasonable employment expenses incurred by the Executive in accordance with
the Company's policies, practices and procedures, as amended from time to time.
3. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Disability (as defined below) of the Executive has occurred during the
Employment Period, the Company may give to the Executive written notice in
accordance with Section 11(b) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 90th day after receipt of such notice by the
Executive (the "Disability Effective Date"), if, within the 90 days after such
receipt, the Executive shall not have returned to perform, with reasonable
accommodation, the essential functions of his position. For purposes of this
Agreement, at any time the Company or any of its affiliates sponsors a long-term
disability plan for the Company's employees, "Disability" shall mean disability
as defined in such long-term disability plan. The determination of whether the
Executive has a Disability shall be made by the person or persons required to
render disability determinations under the long-term disability plan. At any
time the Company does not sponsor a long-term disability plan for its employees,
"Disability" shall mean the Executive's inability to perform, with reasonable
accommodation, the essential functions of his position hereunder for a period of
180 consecutive days due to mental or physical incapacity, as determined by a
physician selected by the Company or its insurers.
(b) CAUSE OR WITHOUT CAUSE. The Company may terminate the
Executive's employment during the Employment Period for Cause or without Cause.
For purposes of this Agreement, "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) the willful
taking of actions which directly impair the Employee's ability to perform the
duties required by the terms of his employment; or (ii) 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; or (e) any material
intentional failure to comply with applicable laws or governmental regulations
within the scope of employment as defined by this Agreement. For purposes of
this Agreement, "without Cause" shall mean a termination by the Company of the
Executive's employment during the Employment Period for any reason other than a
termination based upon Cause, death, Disability or upon a Change of Control, as
defined below.
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(c) CHANGE OF CONTROL. If a Change of Control (as defined
below) occurs during the Employment Period and the Board determines in good
faith that it is in the Company's best interests to terminate the Executive's
employment with the Company within one year of such Change of Control the
Company may terminate the Executive's employment by giving the Executive written
notice in accordance with Section 11(b) of its intention to terminate the
Executive's employment. Any such termination by the Company as contemplated in
this Section 3(d) is referred to herein as a termination "upon a Change of
Control."
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 (after giving effect to the transactions contemplated by the Stock
Purchase Agreement; dated as of the date hereof, by and among the Company and
the other Parties thereto) 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.
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause or without Cause or upon a Change of Control, shall be communicated by a
Notice of Termination to the Executive hereto given in accordance with Section
11(b). For purposes of this Agreement, the term "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall not be more than 15
days after the giving of such notice if the Executive is giving such notice).
The failure by the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Cause or a termination upon a
Change of Control shall not waive any right of the Company hereunder or preclude
the Company from asserting such fact or circumstance in enforcing the Company's
rights hereunder.
(e) DATE OF TERMINATION. The term "Date of Termination" means (i)
if the Executive's employment is terminated by the Company for Cause or upon a
Change of Control, the date of receipt of the Notice of Termination or any later
date specified therein pursuant to Section 3(e), as the case may be, (ii) if the
Executive's employment is terminated by the Executive 30 days from the date of
receipt of the Notice of Termination, (iii) if the Executive's employment is
terminated by the Company other than for Cause or upon a Change of Control, the
date on which the Company notifies the Executive of such termination and (iv) if
the Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability, as the case may be.
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4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) FOR CAUSE; WITHOUT GOOD REASON; OTHER THAN FOR DEATH,
DISABILITY OR UPON A CHANGE OF CONTROL. If, during the Employment Period, the
Company shall terminate the Executive's employment for Cause, the Executive
shall not be entitled to any benefits pursuant to this Agreement.
(b) WITHOUT CAUSE. In the event that the Executive's
employment as Chief Financial 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 the Company, an amount equal to
the Executive's Annual 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.
(c) CHANGE OF CONTROL. In the event that the Company
terminates the Executive's employment as Chief Financial Officer 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 Annual
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.
5. 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.
6. 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 regarding
the subject matter hereof. Any previous agreements or understandings
between the parties regarding the subject matter hereof are merged into
and superseded by this Agreement. All representations, warranties,
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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 Executive. 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):
(1) If to the Company to:
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:
Walter E. Leach, Jr.
6419 Sharon Hills Road
Charlotte, NC 28210
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(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 between the Company or
any of its affiliates and the Executive, including, without limitation,
the agreement between the Company and the Executive, dated September
24, 1994.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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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.
/s/ Walter E. Leach, Jr. By: /s/ Eugene B. Johnson
- --------------------------------- ---------------------------------
Walter E. Leach, Jr. Name: Eugene B. Johnson
Title: Exec. Vice President
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Exhibit 10.37
INSTITUTIONAL STOCKHOLDER SUBSCRIPTION AGREEMENT
This Institutional Stockholder Subscription Agreement (this
"AGREEMENT"), dated as of January 20, 2000, between MJD Communications, Inc., a
Delaware corporation (the "COMPANY"), and the Purchaser named on the signature
page of this Agreement (the "PURCHASER").
WHEREAS, the Purchaser desires to subscribe for, and the Company
desires to make available for purchase, those shares of the Company's Class C
NonVoting Common Stock, par value $.01 per share (the "SHARES"), indicated as
being subscribed for by the Purchaser on the signature page of this Agreement on
the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the parties hereto agree as follows:
1. PURCHASE AND SALE OF THE SHARES. (a) GENERAL. Subject to all of the
terms and conditions of this Agreement, and in reliance upon the representations
and warranties contained herein, the Purchaser hereby subscribes for and agrees
to pur chase, and the Company agrees to sell to the Purchaser for the
Purchaser's own account, the number of Shares set forth opposite the Purchaser's
signature on the signature page of this Agreement.
Notwithstanding anything in this Agreement to the contrary, the Company
shall not have any obligation to sell any of the Shares to any Purchaser who is
a resident of a jurisdiction in which the sale of Shares to such Purchaser would
constitute a violation of the securities, "blue sky" or other similar laws of
such jurisdiction.
(b) PURCHASE PRICE. The purchase price per Share shall be $262.33. At
the Closing, the Purchaser shall purchase the Shares for the aggregate amount
set forth on the signature page of this Agreement (the "PURCHASE PRICE"). The
Purchase Price shall be paid by the Purchaser at the Closing in cash (payable by
wire transfer of immediately available funds to an account designated by the
Company).
2. CLOSING. (a) TIME AND PLACE. The closing of the
transactions contemplated by this Agreement (the "CLOSING") shall be held at the
same place and at the same time and date (the "CLOSING DATE") as the closing
under the Stock Purchase
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Agreement (the "STOCK PURCHASE AGREEMENT"), dated as of January 4, 2000, among
the Company, Kelso Investment Associates V, L.P. ("KIA V"), Kelso Equity
Partners V, L.P. ("KEP V"; together with KIA V, "KELSO"), Thomas H. Lee Equity
Fund IV, L.P. and the other parties thereto, as the same shall be amended from
time to time.
(b) DELIVERY BY THE COMPANY. At the Closing, against delivery of the
Purchase Price, the Company will deliver to the Purchaser (I) a stock
certificate registered in the Purchaser's name and representing the number of
Shares purchased by the Purchaser, which certificate shall bear the legends set
forth in the Institutional Stockholders' Agreement, dated as of the Closing Date
(the "INSTITUTIONAL STOCKHOLDERS' AGREEMENT"), among the Company and each other
purchaser of the Company's Class C Common Stock and (II) a signature page to the
Institutional Stockholders' Agreement executed by the Company.
(c) DELIVERY BY THE PURCHASER. At the Closing, the Purchaser will
deliver (I) the Purchase Price as provided in Section 1(b) and (II) a signature
page to the Institutional Stockholders' Agreement executed by the Purchaser.
(d) CONDITIONS PRECEDENT. The obligation of the Purchaser under this
Agreement to purchase the Shares, and the obligation of the Company under this
Agreement to sell the Shares, are both subject to the condition that the closing
under the Stock Purchase Agreement shall have occurred or shall be occurring.
3. PURCHASER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. (a)
INVESTMENT INTENTION AND RESTRICTIONS ON DISPOSITION. The Purchaser represents
and warrants that the Purchaser is acquiring the Shares solely for the
Purchaser's own account for investment and not with a view to, or for sale in
connection with, any distribution thereof. The Purchaser agrees that the
Purchaser will not, directly or indirectly, offer, transfer, sell, pledge,
hypothecate or otherwise dispose of any of the Shares (or solicit any offers to
buy, purchase or otherwise acquire or take a pledge of any of the Shares) or any
interest therein or any rights relating thereto, except in compliance with the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "ACT"), all applicable state securities or "blue sky" laws and the
Institutional Stockholders' Agreement, as the same shall be amended from time to
time. Any attempt by the Purchaser, directly or indirectly, to offer, transfer,
sell, pledge, hypothecate or otherwise dispose of any of the Shares or any
interest therein or any rights relating thereto without complying with the
provisions of this Agreement and the Institutional Stockholders' Agreement, as
the same shall be amended from time to time, shall be void and of no effect.
(b) SECURITIES LAW MATTERS. The Purchaser acknowledges receipt of
advice from the Company that (I) the Shares have not been registered under the
Act or
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qualified under any state securities or "blue sky" laws, (II) it is not
anticipated that there will be any public market for the Shares, (III) the
Shares must be held indefinitely and the Purchaser must continue to bear the
economic risk of the investment in the Shares unless such Shares are
subsequently registered under the Act and such state laws or an exemption from
such registration is available, (IV) Rule 144 promulgated under the Act ("RULE
144") is not presently available with respect to sales of any securities of the
Company and the Company has made no covenant to make Rule 144 available and Rule
144 is not anticipated to be available in the foreseeable future, (V) when and
if the Shares may be disposed of without registration in reliance upon Rule 144,
such disposition can be made only in limited amounts and in accordance with the
terms and conditions of such Rule, (VI) if the exemption afforded by Rule 144 is
not available, public sale of the Shares without registration will require the
availability of an exemption under the Act, (VII) restrictive legends in the
form set forth in the Institutional Stockholders' Agreement shall be placed on
the certificate representing the Shares and (VIII) a notation shall be made in
the appropriate records of the Company indicating that the Shares are subject to
restrictions on transfer and, if the Company should in the future engage the
services of a stock transfer agent, appropriate stop-transfer instructions will
be issued to such transfer agent with respect to the Shares.
(c) ABILITY TO BEAR RISK. The Purchaser represents and warrants that
(I) the financial situation of the Purchaser is such that the Purchaser can
afford to bear the economic risk of holding the Shares for an indefinite period
and (II) the Purchaser can afford to suffer the complete loss of the Purchaser's
investment in the Shares.
(d) ACCESS TO INFORMATION; SOPHISTICATION; LACK OF RELIANCE. The
Purchaser represents and warrants that (I) the Purchaser has been granted the
opportunity to ask questions of, and receive answers from, representatives of
the Company concerning the Company and the terms and conditions of the purchase
of the Shares and to obtain any additional information that the Purchaser deems
necessary, (II) the Purchaser's knowledge and experience in financial business
matters is such that the Purchaser is capable of evaluating the merits and risks
of the investment in the Shares and (III) the Purchaser has carefully reviewed
the terms and provisions of the Institutional Stockholders' Agreement and has
evaluated the restrictions and obligations contained therein. In furtherance of
the foregoing, each Purchaser represents and warrants that (I) no representation
or warranty, express or implied, whether written or oral, as to the financial
condition, results of operations, prospects, properties or business of the
Company or as to the desirability or value of an investment in the Company has
been made to such Purchaser by or on behalf of the Company, except for those
representations and warranties contained in Section 4 hereof and in the
Institutional Stockholders' Agreement, (II) such Purchaser has relied upon such
Purchaser's own independent appraisal and investigation, and the advice of such
Purchaser's own counsel, tax advisors and other advisors, regarding the risks of
an
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investment in the Company and (III) such Purchaser will continue to bear sole re
sponsibility for making its own independent evaluation and monitoring of the
risks of its investment in the Company. For purposes of this Section 3(d), the
Company includes each subsidiary of the Company.
(e) ACCREDITED INVESTOR. The Purchaser represents and warrants that the
Purchaser is an "accredited investor" as such term is defined in Rule 501(a)
promulgated under the Act
(f) DUE EXECUTION, ENFORCEABILITY, ETC. The Purchaser represents and
warrants that (I) the Purchaser has duly executed and delivered this Agreement,
(II) all actions required to be taken by or on behalf of the Purchaser to
authorize it to execute, deliver and perform its obligations under this
Agreement and the Institutional Stockholders' Agreement have been taken, (III)
this Agreement constitutes and, upon execution thereof, the Institutional
Stockholders' Agreement will constitute, the Purchaser's legal, valid and
binding obligations, enforceable against the Purchaser in accordance with their
respective terms, (IV) the execution and delivery of this Agreement and the
Institutional Stockholders' Agreement and the consummation by the Purchaser of
the transactions contemplated hereby and thereby in the manner contemplated
hereby and thereby do not and will not conflict with, or result in a breach of
any terms of, or constitute a default under, any agreement or instrument or any
statute, law, rule or regulation, or any judgment, decree, writ, injunction,
order or award of any arbitrator, court or governmental authority which is
applicable to the Purchaser or by which the Purchaser or any material portion of
its properties is bound, (V) no consent, approval, authorization, order, filing,
registration or qualification of or with any court, governmental authority or
third person is required to be obtained by the Purchaser in connection with the
execution and delivery of this Agreement or the Institutional Stockholders'
Agreement or the performance of the Purchaser's obligations hereunder or
thereunder and (VI) the Purchaser's principal place of business and mailing
address are in the state set forth below the Purchaser's signature on the
signature page.
(g) NO BROKERS. No broker has acted on behalf of the Purchaser in
connection with this Agreement, and there are no brokerage commissions, finders'
fees or commissions payable in connection herewith.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Purchaser that:
(i) prior to the Closing it will have taken all corporate
actions necessary to authorize it to enter into and perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby;
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(ii) this Agreement will be duly executed and delivered by the
Company and constitute the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except as the same may be affected by bankruptcy, insolvency,
moratorium or similar laws, or by legal or equitable principles
relating to or limiting the rights of contracting parties generally;
(iii) upon the delivery of and payment for the Shares at the
Closing as provided for in this Agreement, the Purchaser will acquire
good and valid title to all such shares of capital stock being sold to
it by the Company, free and clear of all liens, and all such shares of
capital stock being acquired by the Purchaser will be duly authorized,
validly issued, fully paid and non-assessable;
(iv) immediately prior to the Closing, the authorized capital
stock of the Company will consist of 3,000,000 shares of Common Stock,
of which 1,810,147 shares will be issued and outstanding and 300,000
shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), of which no shares will be issued and outstanding; and
immediately following the Closing and after giving effect to the
transactions contemplated by this Agreement and the Stock Purchase
Agreement and assuming that Kelso will purchase 212,183 shares of the
Class B Common Stock, par value $.01 per share (the "Class B Common
Stock") at the Closing, the authorized capital stock of the Company
will consist of (A) 60,000,000 shares of Class A Common Stock, of which
571,117.4 shares will be issued and outstanding on a fully-diluted
basis, (B) 50,000,000 shares of Class B Common Stock, 627,186.4 of
which shares will be issued and outstanding and owned of record by
Kelso, which if converted into shares of Class A Common Stock at such
time (assuming all shares of Series D Non-Voting Convertible Preferred
Stock, par value $.01 per share (the "Series D Preferred Stock") were
converted into Class A Common Stock simultaneously), would represent
25.2% of the issued and outstanding Class A Common Stock (or 22.1% on a
fully diluted basis (assuming the consummation of the option exchange
contemplated by Section 6.21 of the Stock Purchase Agreement on the
terms contemplated as of the Closing Date)), (C) 4,600,000 shares of
Class C Common Stock, of which 213,472 will be issued and outstanding,
which if converted into shares of Class A Common Stock at such time
(assuming all shares of Class B Common Stock and Series D Preferred
Stock were converted into Class A Common Stock simultaneously), would
represent 8.6% of the issued and outstanding Class A Common Stock (or
7.5% on a fully diluted basis (assuming the consummation of the option
exchange contemplated by Section 6.21 of the Stock Purchase Agreement
on the terms contemplated as of the Closing Date)), and (D) 30,000,000
shares of Preferred Stock, par value $.01 per share, of which
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1,073,086 shares of Series D Preferred Stock will be issued and
outstanding. THL will own 1,073,086 shares of Series D Preferred Stock,
which if converted into shares of Class A Common Stock at such time
(assuming all shares of Class B Common Stock were converted into Class
A Common Stock simultaneously), would represent 43.2% of the issued and
outstanding Class A Common Stock (or 37.7% on a fully diluted basis
(assuming the consummation of the option exchange contemplated by
Section 6.21 of the Stock Purchase Agreement on the terms contemplated
as of the Closing Date)); and
(v) Except for as set forth on Schedule I hereto, the
execution, delivery and performance by the Company of this Agreement
and the Institutional Stockholders' Agreement and the consummation of
the transactions contemplated hereby and thereby (including, without
limitation, the issuance and ownership of the Shares to be issued to
the Purchaser hereunder and the receipt and exercise of the rights of
the Purchaser hereunder and thereunder), 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 the Company or any subsidiary under (A)
any applicable law, (B) any provision of the certificate or articles of
incorporation, by-laws or other organizational documents, as the case
may be, of the Company or any subsidiary, or (C) any contract,
agreement, license or other instrument to which the Company or any
subsidiary is a party or by which any of 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.
5. MISCELLANEOUS. (a) BINDING EFFECT; BENEFITS. This Agreement shall be
binding upon and inure to the benefit of the parties to this Agreement and their
respective successors and permitted assigns. Nothing in this Agreement, express
or implied, is intended or shall be construed to give any person other than the
parties to this Agreement and their respective successors or permitted assigns
any legal or equitable right, remedy or claim under or in respect of any
agreement or any provision contained herein.
(b) WAIVER. The waiver by either party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
preceding or succeeding breach and no failure by either party to exercise any
right or privilege hereunder shall be deemed a waiver of such party's rights or
privileges
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<PAGE>
hereunder or shall be deemed a waiver of such party's rights to exercise the
same at any subsequent time or times hereunder.
(c) SURVIVAL; REMEDY. The representations and warranties
contained in Section 4 of this Agreement shall survive for one year after the
Closing. The sole and exclusive remedy for any breach or inaccuracy of the
representations and warranties contained in Section 4 of this Agreement shall be
as set forth in Section 4 of the Institutional Stockholders' Agreement.
(d) ATTORNEYS' FEES. At the Closing and only if there is a
Closing, the Company will reimburse the Purchaser for its reasonable attorneys'
fees for the review and negotiation of this Agreement and the Institutional
Stockholders' Agreement, not to exceed $________.1/
(e) AMENDMENTS. This Agreement may be amended, modified or
supplemented only by the written agreement of the parties hereto executed by the
Purchaser and the Company.
(f) ASSIGNABILITY. Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by either the Company or the Purchaser without the prior written
consent of the other party.
(g) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with, the law of the State of New York, without giving
effect to the choice of law principles thereof.
(h) NOTICES. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been 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: if to the Purchaser, to the Purchaser
at the address set forth under the Purchaser's name on the signature page of
this Agreement or to such other person or
- ----------------------
1$5,000 per bank. For banks investing with multiple funds, the $5,000
cap will be split equally among the funds.
7
<PAGE>
address as the Purchaser shall specify by notice in writing to the Company; and
if to the Company, to it at 521 East Morehead Street, Suite 250, Charlotte,
North Carolina 28202, Attention: Mr. Walter E. Leach, Jr. 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.
(i) HEADINGS. The headings contained herein are for
convenience only and shall not control or affect the meaning or interpretation
of any provision hereof.
(j) COUNTERPARTS. 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 agreement.
(k) TERMINATION. In the event the Stock Purchase Agreement is
terminated, this Agreement shall automatically terminate, without any liability
on the part of either party.
(l) SEVERABILITY. In case any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, the validity and
enforceability of the remaining provisions shall not in any way be affected
thereby.
(m) ENTIRE AGREEMENT. The Institutional Stockholders'
Agreement and this Agreement shall constitute the entire agreement of the
parties hereto with respect to the subject hereof and shall supersede all prior
agreements, arrangements, understandings, documents, instruments and
communications, whether written or oral, with respect to such subject matter.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have
executed this Agreement as of the date set forth below.
Date: January 31, 2000
MJD COMMUNICATIONS, INC.
By: /s/ WALTER E. LEACH, JR.
------------------------------------
Name: Walter E. Leach Jr.
Title: Senior Vice President and CFO
Total number of shares TRV EXECUTIVES FUND, L.P.
of Class C Common Stock By: GREENWICH STREET INVESTMENTS II,
subscribed for: L.L.C., its General Partner
710 Shares By: /s/ SANJAY H. PATEL
- -------------- ------------------------------------
Name: Sanjay H. Patel
Title: Managing Member
Purchase Price for Address of Purchaser:
Shares of Class C
Common Stock Greenwich Street Capital Partners
subscribed for: 388 Greenwich Street, 36th Floor
New York, NY 10013
$ 44,030.20
[Counterparts of this page were executed by each party listed on
Exhibit A to the Institutional Stockholders' Agreement]
[Institutional Stockholder Subscription Agreement Signature Page]
<PAGE>
Exhibit 10.38
INSTITUTIONAL STOCKHOLDERS' AGREEMENT
THIS INSTITUTIONAL STOCKHOLDERS' AGREEMENT (this "AGREEMENT"), dated as
of January 20, 2000, among MJD Communications, Inc., a Delaware corporation (the
"COMPANY"), each of the stockholders listed on Exhibit A (collectively, the
"INSTITUTIONAL STOCKHOLDERS"; individually, an "INSTITUTIONAL STOCKHOLDER"),
Kelso Investment Associates V, L.P., a Delaware limited partnership ("KIA V"),
Kelso Equity Partners V, L.P., a Delaware limited partnership ("KEP V"; together
with KIA V, "KELSO"),Thomas H. Lee Equity Fund IV, L.P., a Delaware limited
partnership ("THL FUND IV") and THL Equity Advisors IV, LLC, a Massachusetts
limited liability company, in its capacity as representative of the THL Related
Parties (as such term is defined in the Stock Purchase Agreement (the "STOCK
PURCHASE AGREEMENT"), dated as of January 4, 2000, among the Company, Kelso, THL
Fund IV and the other parties thereto). For the purposes of this Agreement,
"CLASS C COMMON STOCK" shall mean the Class C Common Stock of the Company, par
value $.01 per share.
The parties hereto agree as follows:
1. TRANSFER OF CLASS C COMMON STOCK. (a) Prior to the closing of a
registration that covers (together with any prior effective registrations) (I)
shares of Class A Common Stock, par value $.01, of the Company ( "CLASS A COMMON
STOCK") which are sold for an aggregate price of at least $150 million or (II)
shares of Class A 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 (an
"IPO"), no Institutional Stockholder may, directly or indirectly, sell, assign,
mortgage, transfer, pledge, hypothecate or otherwise dispose of or transfer
(collectively, "TRANSFER") any shares of Class C Common Stock or any interest
therein, except for (X) Transfers which, prior thereto, the Board of Directors
of the Company (the "BOARD") shall have consented to in writing, (Y) Transfers
pursuant to the following paragraphs (b) and (c), or (Z) Transfers to an
Affiliate which is not a telecom company and which does not directly or
indirectly own a telecom company, PROVIDED that if such Affiliate ceases to be
such an Affiliate, then the transferred shares of Class C Common Stock must be
transferred back to the original Institutional Stockholder. For the purposes of
this Agreement, "AFFILIATE" shall mean, with respect to any individual,
corporation, partnership, trust or other entity or organization (each, a
"PERSON"), any other Person directly or indirectly controlling, controlled by,
or under common control with such Person.
(b) In the event that either (I) (A) Kelso, or THL Fund IV, together
with the THL Related Parties (as defined in the Stock Purchase Agreement)
("THL"), owns
<PAGE>
at least 10% of the shares of the Company's capital stock owned by it as of the
Closing Date (as defined in the Stock Purchase Agreement) (the "10% CONDITION"),
and (B) whichever of Kelso or THL, or both, who satisfy the 10% Condition (such
parties being the "SELLING SHAREHOLDERS"), intend to sell any shares of Class A
Common Stock (including all shares of capital stock convertible into Class A
Common Stock, whether or not then convertible) to one or more third parties who
are not Affiliates, or (II) in the event that the Board has approved the sale of
the Company, whether by merger, consolidation, sale of all or substantially all
of its assets, recapitalization or otherwise, each Institutional Stockholder,
upon the request of the Selling Stockholders, will consent to and raise no
objections against such transaction (and shall waive any rights of appraisal)
and shall fully cooperate with and take all necessary and desirable actions in
connection with the consummation of such transaction, including, without
limitation, executing a purchase agreement in the form approved by the Selling
Stockholders. If the transaction involves a sale of stock, each Institutional
Stockholder shall agree to sell that number of shares equal to the product of
(A) the aggregate number of shares of Class C Common Stock then held by such
Institutional Stockholder times (B) a fraction, the numerator of which is the
aggregate number of shares of Class A Common Stock (including all shares of
capital stock convertible into Class A Common Stock, whether or not then
convertible) being sold by the Selling Stockholders in such sale and the
denominator of which is the aggregate number of shares of Class A Common Stock
(including all shares of capital stock convertible into Class A Common Stock,
whether or not then convertible) then held by all Selling Stockholders. Such
sale shall be for a purchase price per share and on other terms and conditions
not less favorable to each Institutional Stockholder than those applicable to
the Selling Stockholders; PROVIDED, however, that the form of consideration to
be received by the Selling Stockholders may be different from that received by
the Institutional Stockholders so long as the value of the consideration to be
received by the Selling Stockholders is the same or less than that to be
received by the Institutional Stockholders (as reasonably determined by the
Board in good faith, excluding members of the Board who are designees of the
Selling Stockholders).
(c) In the event that either Kelso or THL, or both, satisfies the 10%
Condition, and if the Selling Stockholders do not exercise their rights under
Section 1(b) before 20 days prior to any proposed Transfer (including by merger,
consolidation or otherwise) of Class A Common Stock (including all shares of
capital stock convertible into Class A Common Stock, whether or not then
convertible) by the Selling Stockholders to one or more parties who are not
Affiliates of the Selling Stockholders and not including a Transfer pursuant to
a registered offering or Rule 144 under the Securities Act of 1933, as amended,
then such Selling Stockholders shall deliver to the Institutional Stockholders a
written notice (the "SALE NOTICE") specifying in reasonable detail the identity
of the proposed transferee(s) and the terms and conditions of the proposed
Transfer. Any Institutional Stockholder may elect to
2
<PAGE>
participate in the proposed Transfer by delivering to the Selling Stockholders a
written notice of such election within the 10 business day period following
delivery of the Sale Notice. If one or more Institutional Stockholders elect to
participate in such Transfer (the "PARTICIPATING STOCKHOLDERS"), the number of
shares of Class C Common Stock that each Institutional Stockholder will be
permitted to sell in such proposed Transfer will be the product of (I) the
number of shares of Class C Common Stock then held by the Institutional
Stockholder and (II) a fraction, the numerator of which shall be the number of
shares of Class A Common Stock (including all shares of capital stock
convertible into Class A Common Stock, whether or not then convertible) which
the Selling Stockholders propose to sell in the proposed Transfer and the
denominator of which shall be the number of shares of Class A Common Stock
(including all shares of capital stock convertible into Class A Common Stock,
whether or not then convertible) then held by the Selling Stockholders. The
Participating Stockholders shall pay a pro rata portion of the transaction
expenses associated with such Transfer.
(d) The Institutional Stockholder agrees that, in the event that the
Company files a registration statement under the Securities Act with respect to
a public offering of any shares of its capital stock, the Institutional
Stockholder will not effect any public sale or distribution of any shares of the
Class A Common Stock (other than part of such public offering) including, but
not limited to, pursuant to Rule 144 under the Securities Act, during the 20
days prior to and the 180 days after the effective date of such registration
statement and the Institutional Stockholder agrees to execute a customary
hold-back agreement with the underwriters for any such public offering. In
addition, upon the completion of a public offering which is an IPO, the
Institutional Stockholder agrees that it shall become a party (as an Other
Investor) to the Registration Rights Agreement, dated as of the date hereof,
among the Company, Kelso, THL and the other parties thereto, and that it shall
be bound by all of the obligations of an Other Investor thereunder, including
without limitation, Section 5 thereof, and such Institutional Stockholder
acknowledges that it shall have (A) piggyback registration rights under Sections
1.5 and 2 thereof, and (B) the right to Transfer its shares of Class A Common
Stock pursuant to Section 12.1 thereof, but only to the extent that after any
Transfer pursuant to clause (B), such Institutional Stockholder will continue to
own at least as great a percentage of the shares of Class C Common Stock owned
by it as of the date hereof divided by the number of shares of Class A Common
Stock which will be owned by it after the proposed Transfer as that percentage
which is the sum of (i) the percentage of shares of the Company's capital stock
owned by Kelso as of the Closing Date (as defined in the Stock Purchase
Agreement) divided by the number of shares of the Company's capital stock owned
by Kelso on the date of such proposed Transfer; plus (ii) the percentage of
shares of the Company's capital stock owned by THL as of the Closing Date (as
defined in the Stock Purchase Agreement) divided by the number of shares of the
Company's capital stock owned by THL on the date of such proposed Transfer;
divided by two (i.e. if Kelso still
3
<PAGE>
owns 25% of the shares of capital stock originally owned by it, and THL still
owns 75% of the shares of capital stock originally owned by it, any
Institutional Stockholder proposing to Transfer shares pursuant to clause (B)
would need to own that number of shares of Class A Common Stock after the
proposed Transfer which was at least 50% of the number of shares of Class C
Common Stock originally owned by it).
2. STOCK CERTIFICATE LEGENDS. A copy of this Institutional
Stockholders' Agreement shall be filed with the Secretary of the Company and
kept with the records of the Company. Each certificate representing any shares
of Class C Common Stock owned by the Institutional Stockholder shall bear the
following legends:
"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 COMPLIANCE WITH THE ACT, SUCH LAWS AND THE INSTITUTIONAL
STOCKHOLDERS' AGREEMENT, DATED AS OF JANUARY [ ], 2000, AMONG THE ISSUER AND
CERTAIN STOCKHOLDERS OF THE ISSUER (THE "STOCKHOLDERS AGREEMENT")."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AND OTHER CONDITIONS, AS SPECIFIED IN THE STOCKHOLDERS AGREEMENT. A
COPY OF THE STOCKHOLDERS AGREEMENT IS ON FILE AT THE OFFICE OF THE ISSUER AND
WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF SUCH SHARES UPON WRITTEN
REQUEST."
"THE ISSUER WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS THE
POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OR SERIES OF SHARES AUTHORIZED TO BE ISSUED AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS."
4
<PAGE>
In addition, such certificates will bear such legends as may be
required by any state securities laws.
3. AGREEMENT TO BE BOUND. Any Transfer of shares of Class C Common
Stock by the Institutional Stockholder permitted under Section 1(a)(x) or
Section 1(a)(z) of this Agreement shall be permitted and shall be effective only
if the transferee of such shares shall agree in writing to be bound by the terms
and conditions of this Agreement pursuant to an instrument of assumption
reasonably satisfactory in substance and form to the Board. Upon the execution
of such instrument by such transferee, such transferee shall be deemed to be the
Institutional Stockholder for all purposes of this Agreement.
4. INDEMNIFICATION. In the event that THL and/or Kelso receive any
payments pursuant to Article XI of the Stock Purchase Agreement (an
"Indemnification Payment"), THL and/or Kelso, as the case may be, agree to share
such Indemnification Payment with the Institutional Stockholders in accordance
with Schedule I hereto; PROVIDED that if any such Indemnification Payment is for
a Loss (as defined in the Stock Purchase Agreement) that does not affect one or
more of the Institutional Stockholders, then the Institutional Stockholders not
affected shall have no right to any portion of such Indemnification Payment.
Each Institutional Stockholder agrees that it does not have third party
beneficiary rights under the Stock Purchase Agreement and it has no right to
enforce the provisions of Article XI and its rights to payment in connection
therewith is solely pursuant to this Section 4. Each Institutional Stockholder
further agrees that this Section 4 is such Institutional Stockholder's sole and
exclusive remedy for the breach of any representations and warranties made in
this Agreement, the applicable Institutional Stockholder Subscription Agreement
between the Company and such Institutional Stockholder and the Stock Purchase
Agreement.
5. TERMINATION. Any party to this Agreement which ceases to own any
shares of Class A Common Stock or Class C Common Stock shall cease to be a party
to this Agreement and, thereafter, shall have no rights or obligations
hereunder, PROVIDED that no sale of shares of Class A Common Stock or Class C
Common Stock by any Institutional Stockholder in breach of this Agreement shall
relieve such Institutional Stockholder of liability for any such breach. This
Agreement, except for Section 1(d) hereof, will terminate upon an IPO and will
be of no further force or effect, PROVIDED that any liability of an
Institutional Stockholder for any pre-termination breach of the Agreement will
survive such termination.
6. 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 may reasonably request in
order to carry out the
5
<PAGE>
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
7. GOVERNING LAW. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to the choice of law principles thereof.
8. SEVERABILITY. In case any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, the validity or enforceability of
the remaining provisions shall not in any way be affected thereby.
9. NOTICES. All notices 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
Fax: (704) 344-8121
Attention: Mr. Walt Leach
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Fax: (212) 319-4090
Attention: Neil A. Torpey, Esq.
(ii) If to an Institutional Stockholder, as provided on Exhibit A,
6
<PAGE>
or to such other person or address as the Purchaser 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.
10. HEADINGS. The headings and captions contained herein are for
convenience and shall not control or affect the meaning of our construction of
any provision hereof.
11. COUNTERPARTS. 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.
12. AMENDMENT. This Agreement may only be amended with the consent of
all of the parties hereto.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by each of the
parties hereto as of the date first above written.
MJD COMMUNICATIONS, INC.
By: /s/ WALTER E. LEACH, JR.
--------------------------------------
Name: Walter E. Leach Jr.
Title: Senior Vice President and CFO
KELSO INVESTMENT ASSOCIATES V, L.P.
By: Kelso Partners V, L.P., its
general partner
By: /s/ GEORGE E. MATELICH
--------------------------------------
Name: George E. Matelich
Title: General Partner
KELSO EQUITY PARTNERS V, L.P.
By: /s/ GEORGE E. MATELICH
--------------------------------------
Name: George E. Matelich
Title: General Partner
THOMAS H. LEE EQUITY FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ SCOTT M. SPERLING
--------------------------------------
[Institutional Stockholders' Agreement Signature Page]
<PAGE>
Name: Scott M. Sperling
Title: Managing Director
DLJ FUND INVESTMENT PARTNERS II, L.P.
By: DLJ LBO Plans Management Corporation
By: /s/ ED POLETTI
--------------------------------------
Name: Ed Poletti
Title: Vice President
DLJ PRIVATE EQUITY EMPLOYEES FUND, L.P.
By: DLJ LBO Plans Management Corporation
By: /s/ ED POLETTI
--------------------------------------
Name: Ed Poletti
Title: Vice President
DLJ PRIVATE EQUITY PARTNERS FUND, L.P.
By: WSW Capital, Inc.
By: /s/ ED POLETTI
--------------------------------------
Name: Ed Poletti
Title: Vice President
[Institutional Stockholders' Agreement Signature Page]
<PAGE>
DLJ CAPITAL PARTNERS I, LLC
By:
--------------------------------------
By: /s/ ED POLETTI
--------------------------------------
Name: Ed Poletti
Title: Vice President
GREENWICH STREET CAPITAL PARTNERS II, L.P.
By: Greenwich Street Investments II,
L.L.C., its General Partner
By: /s/ SANJAY H. PATEL
--------------------------------------
Name: Sanjay H. Patel
Title: Managing Member
GSCP OFFSHORE FUND, L.P.
By: Greenwich Street Investments II,
L.L.C., its General Partner
By: /s/ SANJAY H. PATEL
--------------------------------------
Name: Sanjay H. Patel
Title: Managing Member
GREENWICH FUND, L.P.
By: Greenwich Street Investments II,
L.L.C., its General Partner
By: /s/ SANJAY H. PATEL
--------------------------------------
Name: Sanjay H. Patel
Title: Managing Member
[Institutional Stockholders' Agreement Signature Page]
<PAGE>
GREENWICH STREET EMPLOYEES FUND,
L.P.
By: Greenwich Street Investments II,
L.L.C., its General Partner
By: /s/ SANJAY H. PATEL
--------------------------------------
Name: Sanjay H. Patel
Title: Managing Member
TRV EXECUTIVES FUND, L.P.
By: Greenwich Street Investments II,
L.L.C., its General Partner
By: /s/ SANJAY H. PATEL
--------------------------------------
Name: Sanjay H. Patel
Title: Managing Member
MAGNETITE ASSET INVESTORS LLC
By: Blackrock Financial Management, Inc.
As Managing Member
By: /s/ DENNIS M. SCHANEY
--------------------------------------
Name: Dennis M. Schaney
Title: Managing Director
[Institutional Stockholders' Agreement Signature Page]
<PAGE>
THL EQUITY ADVISORS IV, LLC
By: /s/ SCOTT M. SPERLING
--------------------------------------
Name: Scott M. Sperling
Title: Managing Director
DB CAPITAL INVESTORS, L.P.
By: DB Capital Partners, L.P.,
its General Partner
By: DB Capital Partners, Inc.
By: /s/ FRANK SCHIFF
--------------------------------------
Name: Frank Schiff
Title: Managing Director
[Institutional Stockholders' Agreement Signature Page]
<PAGE>
FIRST UNION INVESTORS, INC.
By: /s/ PEARCE LANDRY
--------------------------------------
Name: Pearce Landry
Title: Vice President
BANCAMERICA CAPITAL INVESTORS I, L.P.
By: BancAmerica Capital
Management I, L.P.
Its general partner
By: BACM I GP, LLC,
Its general partner
By: /s/ GEORGE E. MORGAN III
--------------------------------------
Name: George E. Morgan III
Title: Member
[Institutional Stockholders' Agreement Signature Page]
<PAGE>
COINVESTMENT I, LLC
By: /s/ LAURENCE D. FINK
--------------------------------------
Name: Laurence D. Fink
Title: Managing Member
[Institutional Stockholders' Agreement Signature Page]
<PAGE>
Exhibit A
INSTITUTIONAL STOCKHOLDERS
DLJ FUND INVESTMENT PARTNERS II, L.P.
DLJ PRIVATE EQUITY EMPLOYEES FUND, L.P.
DLJ PRIVATE EQUITY PARTNERS FUND, L.P.
DLJ CAPITAL PARTNERS I, LLC
Donaldson Lufkin & Jenrette
277 Park Avenue, 23rd Floor
New York, NY 10172
Fax: (212) 892-7215
Attention: Ms. Ivy Dodes
GREENWICH STREET CAPITAL PARTNERS II, L.P.
GSCP OFFSHORE FUND, L.P.
GREENWICH FUND, L.P.
GREENWICH STREET EMPLOYEES FUND, L.P.
TRV EXECUTIVES FUND, L.P.
Greenwich Street Capital Partners
388 Greenwich Street, 36th Floor
New York, NY 10013
Fax: (212) 816-9628
Attention: Matthew Kaufman
MAGNETITE ASSET INVESTORS L.L.C.
c/o BlackRock Financial Management
345 Park Avenue
29th Floor
New York, NY 10154
Fax: (212) 754-8756
Attention: Dennis Schaney
<PAGE>
DB CAPITAL INVESTORS, L.P.
DB Capital Partners, Inc.
130 Liberty Street, 25th Floor
New York, NY 10006
Fax: (212)250-9518
Attention: Frank Schiff
FIRST UNION INVESTORS, INC.
First Union Capital Markets
One First Union Center, 5th Floor
Charlotte, NC 28288
Fax: (704) 374-6711
Attention: Pearce Landry
BANCAMERICA CAPITAL INVESTORS I, L.P.
Bank of America
100 North Tryon Street, 25th Floor
Charlotte, NC 28255
Fax: (704) 386-6432
Attention: Ed Balogh
COINVESTMENT I, LLC
c/o BlackRock Financial Management
345 Park Avenue
29th Floor
New York, NY 10154
Fax: (212) 754-8756
Attention: Dennis Schaney
<PAGE>
Schedule I
Indemnification Payment Sharing Percentages1/
Institutional Stockholder Indemnification Payment Sharing
Percentage
DLJ Fund Investment Partners II, L.P. .5182 %
DLJ Private Equity Employees Fund, .0474 %
L.P.
DLJ Private Equity Partners Fund, L.P. 1.3312 %
DLJ Capital Partners I, LLC .5570 %
Greenwich Street Capital Partners II, 2.1923 %
L.P.
GSCP Offshore Fund, L.P. .0457 %
Greenwich Fund, L.P. .0742 %
Greenwich Street Employees Fund, L.P. .1308 %
TRV Executives Fund, L.P. .0108 %
Magnetite Asset Investors LLC .9815 %
DB Capital Investors, L.P. 2.4539 %
First Union Investors, Inc. 2.4539 %
BancAmerica Capital Investors I, L.P. 2.4539 %
CoInvestment I, LLC .4907 %
- ------------
1These percentages will be based on the relative amounts invested in the
Company by THL, Kelso and each Institutional Stockholder at the closing.
<PAGE>
Exhibit 21
Subsidiaries of MJD Communications, Inc.
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
<S> <C>
ST Enterprises, Ltd. Kansas
Sunflower Telephone Company, Inc. Kansas
STE/NE Acquisition Corp., d/b/a/ Northland Delaware
Telephone Company of Vermont
Northland Telephone Company of Maine, Inc. Maine
ST Communications, Inc. Kansas
ST Computer Resources, Inc. Kansas
ST Long Distance, Inc. Delaware
ST Broadcasting Company, Inc Kansas
MJD Ventures, Inc Delaware
The Columbus Grove Telephone Company Ohio
Quality One Technologies, Inc. Ohio
C-R Communications, Inc Illinois
C-R Telephone Company Illinois
C-R Cellular, Inc. Illinois
C-R Long Distance, Inc Illinois
Taconic Telephone Corp. New York
Taconic Cellular Corp. New York
Taconic Technology Corp New York
Taconic Telecom Corp. New York
Taconet Wireless Corp New York
Taconet Corp New York
<PAGE>
Ellensburg Telephone Company Washington
Elltel Long Distance Corp. Washington
Elltel Wireless, Inc. Washington
Kittitas Valley Paging Limited Partnership Delaware
Sidney Telephone Company Maine
Utilities, Inc. Maine
Standish Telephone Company Maine
China Telephone Company Maine
Maine Telephone Company Maine
UI Long Distance, Inc. Maine
UI Communications, Inc. Maine
UI Telcom, Inc. Maine
Telephone Service Company Maine
Chouteau Telephone Company Oklahoma
Chouteau Telecommunications & Electronics Oklahoma
Independent Cellular Telephone Company Finance Oklahoma
Corporation
Independent Cellular Telephone Company, Inc Oklahoma
TGP, Inc. Delaware
Chautauqua & Erie Telephone Company New York
C&E Teleadvantage New York
C&E Communications, Inc New York
C&E Network, Inc. New York
Chautauqua & Erie Communications Ltd. New York
Western New York Cellular, Inc. New York
<PAGE>
Chautauqua Cable, Inc. New York
MJD Services Corp. Delaware
Bluestem Telephone Company Delaware
Big Sandy Telecom, Inc Delaware
Odin Telephone Exchange, Inc. Illinois
Kadoka Telephone Company South Dakota
Columbine Telecom Company (f/k/a Columbine Delaware
Acquisition Corp.)
Ravenswood Communications, Inc Illinois
The El Paso Telephone Company Illinois
Gemcell, Inc Illinois
El Paso Long Distance Company Illinois
Armour Independent Telephone Co. South Dakota
Bridgewater-Canistota Independent Telephone Co. South Dakota
Union Telephone Company of Hartford South Dakota
Union TelNET, Inc. South Dakota
KM Satellite Services, Inc. South Dakota
WMW Cable TV Co. South Dakota
Yates City Telephone Company Illinois
The Orwell Telephone Company (pending) Ohio
Orwell Communications, Inc Ohio
FairPoint Communications Corp. (f/k/a MJD Delaware
TeleChoice Corp.)
FairPoint Communications Corp. - New York Delaware
FairPoint Communications Corp. - Virginia Delaware
<PAGE>
FairPoint Communications Investments, LLC Delaware
MJD Holdings Corp. Delaware
MJD Capital Corp. South Dakota
</TABLE>
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<PAGE>
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<NAME> MJD COMMUNICATIONS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,923
<SECURITIES> 0
<RECEIVABLES> 26,579
<ALLOWANCES> 921
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<CURRENT-LIABILITIES> 34,520
<BONDS> 200,000
0
0
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<OTHER-SE> (11,926)
<TOTAL-LIABILITY-AND-EQUITY> 516,255
<SALES> 147,539
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<CGS> 19,190
<TOTAL-COSTS> 135,839
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,185
<INCOME-PRETAX> (34,555)
<INCOME-TAX> (5,615)
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<EXTRAORDINARY> 0
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