SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) FEBRUARY 17, 1999
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CORECOMM LIMITED
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(Exact Name of Registrant as Specified in Charter)
Bermuda 0-24521 Not Applicable
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
Cedar House, 41 Cedar Ave., Hamilton, Bermuda HM 12
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code (441) 295-2244
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events.
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(A) On February 18, 1999, CoreComm Limited (NASDAQ: COMMF)("CoreComm")
announced the formation of the first "Smart Local Exchange Carrier" (Smart LEC)
strategy in the U.S., and took a major step forward by signing a definitive
agreement to acquire Megsinet Inc., a fast-growing national Internet network and
regional telecommunications provider.
CoreComm's Smart LEC network strategy combines some of the latest
communications technologies together with a unique implementation plan to
produce an extremely low cost, highly efficient delivery system for bundled
Internet access and local and long distance telephony. In time, this network may
provide video services as well.
Megsinet, a privately held company based in Chicago, Illinois has
constructed an integrated IP network consisting of 57 major-city nodes linked
via a high capacity ATM network. Megsinet has also launched the implementation
of switched-based telephony access starting with the Chicago metropolitan area,
and has been a major proponent of IP telephony and DSL technologies along with
its implementation partners Nortel, Cisco and Ascend.
CoreComm will purchase 100% of Megsinet's stock for a total consideration
of approximately $18.5 million in cash plus approximately 1.5 million shares of
CoreComm common stock. As of December 31, 1998, Megsinet had approximately $26
million in property, plant and equipment and currently serves approximately
45,000 Internet subscribers. The transaction is expected to close in the second
quarter and is subject to certain conditions, including obtaining an effective
registration statement relating to the CoreComm stock to be issued as
consideration.
Separately, CoreComm secured the rights to use the Internet domain name
Core.com, and will transition its national Internet activities to this new name
over the next several months.
(B) On February 19, 1999, CoreComm announced that it had entered into a
definitive agreement to acquire certain assets of USN Communications, Inc.
CoreComm will be acquiring substantially all of USN's local exchange
telecommunications resale business, which operates principally in Illinois,
Ohio, Michigan, Massachusetts and New York, but will not be acquiring USN's
wireless related assets.
Separately, USN announced that it and several of its subsidiaries had
commenced a voluntary Chapter 11 reorganization case in the United States
Bankruptcy Court, District of Delaware on February 18, 1999.
CoreComm will purchase the assets for a combination of: (1) a cash payment
to be determined at the closing of the transaction, which is expected to be
approximately $27 million, (2) warrants to purchase 250,000 shares of CoreComm
common stock at a price of $30 and 100,000 shares at a price of $50, and (3) a
contingent payment which will be based on revenues from the acquired assets
during the six month period ending March 31, 2000.
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Completion of the transaction is conditioned upon approval by the
Bankruptcy Court presiding over USN's Chapter 11 case, required regulatory
approvals and USN maintaining an annualized rate of revenue of approximately $55
million, among other matters. Subject to Bankruptcy Court approval, CoreComm
will participate in debtor-in-possession financing of USN on a senior secured
basis, and will be monitoring USN's progress during the reorganization
proceedings.
Item 7. Financial Statements and Exhibits
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Exhibits
99.1 Agreement and Plan of Merger among CoreComm Limited, CoreComm
Acquisition Sub, Inc. and Megsinet, Inc., dated as of February 17,
1999
99.2 Press release, dated February 18, 1999
99.3 Asset Purchase Agreement, dated as of February 19, 1999, by and
between CoreComm Limited, USN Communications, Inc. ("USN") and several
subsidiaries of USN
99.4 Press release, dated February 19, 1999
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORECOMM LIMITED
(Registrant)
By: /s/ Richard J. Lubasch
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Name: Richard J. Lubasch
Title: Senior Vice President-General
Counsel and Secretary
Dated: February 23, 1999
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EXHIBIT INDEX
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Exhibit Page
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99.1 Agreement and Plan of Merger among CoreComm Limited,
CoreComm Acquisition Sub, Inc. and Megsinet, Inc., dated as
of February 17, 1999
99.2 Press release, dated February 18, 1999
99.3 Asset Purchase Agreement, dated as of February 19, 1999,
by and between CoreComm Limited, USN Communications,
Inc. ("USN") and several subsidiaries of USN
99.4 Press release, dated February 19, 1999
EXHIBIT 99.1
AGREEMENT AND PLAN OF MERGER
AMONG
CORECOMM LIMITED,
CORECOMM ACQUISITION SUB, INC.
AND
MEGSINET, INC.
DATED AS OF FEBRUARY 17, 1999
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TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER
SECTION 1.1 The Merger.................................................. 2
SECTION 1.2 Closing..................................................... 2
SECTION 1.3 Effective Time.............................................. 2
SECTION 1.4 Effects of the Merger....................................... 2
SECTION 1.5 Certificate of Incorporation and By-laws.................... 3
SECTION 1.6 Directors and Officers...................................... 3
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock..................................... 3
SECTION 2.2 Exchange of Certificates.................................... 5
SECTION 2.3 Certain Adjustments......................................... 9
SECTION 2.4 Shares of Dissenting Stockholders........................... 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Megsinet.................. 11
SECTION 3.2 Representations and Warranties of CoreComm.................. 30
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business......................................... 38
SECTION 4.2 No Solicitation by Megsinet................................. 42
SECTION 4.3 Cooperation................................................. 43
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Megsinet Stockholders Meeting............................... 44
SECTION 5.2 Access to Information; Confidentiality...................... 45
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PAGE
SECTION 5.3 Best Efforts................................................ 46
SECTION 5.4 Stock Options............................................... 47
SECTION 5.5 Megsinet Stock Plan and Certain Employee Matters............ 49
SECTION 5.6 Fees and Expenses........................................... 50
SECTION 5.7 Public Announcements........................................ 50
SECTION 5.8 NASDAQ Quotation............................................ 50
SECTION 5.9 Conveyance Taxes............................................ 50
SECTION 5.10 Proxy/Prospectus; Registration Statement................... 51
SECTION 5.11 Ascend Warrant............................................. 52
SECTION 5.12 Pequot Warrant............................................. 52
SECTION 5.13 Allocation Schedule........................................ 52
SECTION 5.14 Cisco Loan................................................. 52
SECTION 5.15 Cisco and Ascend Credit Facilities......................... 53
SECTION 5.16 Pequot Agreement........................................... 53
SECTION 5.17 Stockholders Agreement..................................... 53
SECTION 5.18 NASDAQ Listing............................................. 53
SECTION 5.19 GMV Network LLC............................................ 54
SECTION 5.20 Interested Contracts....................................... 54
SECTION 5.21 Personal Loans............................................. 54
SECTION 5.22 Michael S. Nelson.......................................... 54
SECTION 5.23 Ameritech Interconnection.................................. 55
SECTION 5.24 Alternative Financing...................................... 55
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger.. 55
SECTION 6.2 Conditions to Obligations of CoreComm and Sub............... 56
SECTION 6.3 Conditions to Obligations of Megsinet....................... 58
SECTION 6.4 Frustration of Closing Conditions........................... 59
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination................................................. 59
SECTION 7.2 Effect of Termination....................................... 60
SECTION 7.3 Amendment................................................... 61
SECTION 7.4 Extension; Waiver........................................... 61
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PAGE
SECTION 7.5 Procedure for Termination, Amendment, Extension or Waiver... 61
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Survival and Indemnification................................ 62
SECTION 8.2 Notices..................................................... 65
SECTION 8.3 Definitions................................................. 66
SECTION 8.4 Interpretation.............................................. 67
SECTION 8.5 Counterparts................................................ 68
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries.............. 68
SECTION 8.7 Governing Law............................................... 68
SECTION 8.8 Assignment.................................................. 68
SECTION 8.9 Consent to Jurisdiction..................................... 68
SECTION 8.10 Headings.................................................... 69
SECTION 8.11 Severability................................................ 69
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AGREEMENT AND PLAN OF MERGER dated as of FEBRUARY 17, 1999, among CORECOMM
LIMITED, a Bermuda corpora tion ("CoreComm"), CORECOMM ACQUISITION SUB, INC. a
Delaware corporation("Sub"), and MEGSINET INC., an Illinois corporation
("Megsinet").
WHEREAS, the respective Boards of Directors of CoreComm, Sub and Megsinet
have each approved the merger of Megsinet with and into Sub (the "Merger"), upon
the terms and subject to the conditions set forth in this Agreement, whereby
each issued and outstanding share of common stock, without par value, of
Megsinet ("Megsinet Common Stock"), other than shares owned by CoreComm or
Megsinet, will be converted into the right to receive the Merger Consideration
(as defined in Section 2.1(b)) and the shares of Series 1998A Convertible
Preferred Stock, par value $.01 per share ("Series 1998A Preferred") and Series
A Convertible Preferred Stock, par value $.01 per share intended to be issued to
Pequot (as defined) ("Pequot Preferred") will be converted as set forth in
Section 2.1(d);
WHEREAS, the respective Boards of Directors of CoreComm, Sub and Megsinet
have each determined that the Merger and the other transactions contemplated
hereby are consistent with, and in furtherance of, their respective business
strategies and goals and are in the best interests of their respective
stockholders;
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under Section 368(a) of the Internal Revenue
Code, as amended (the "Code"); and
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements con tained in this Agreement, the parties agree as
follows:
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ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Illinois Business
Corporation Act (the "IBCA") and the Delaware General Corporation Law (the
"DGCL"), Megsinet shall be merged with and into Sub at the Effective Time (as
defined in Section 1.3). Following the Effective Time, Sub shall be the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of Megsinet in accordance with the IBCA
and the DGCL.
SECTION 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VI, unless another time or date
is agreed to by the parties hereto. The Closing will be held at such location in
New York, New York as is agreed to by the parties hereto.
SECTION 1.3 Effective Time. Subject to the provisions of this Agreement, as
soon as practicable on the Closing Date, the parties shall cause the Merger to
be consummated by filing articles of merger or other appropriate documents (in
any such case, the "Articles of Merger") executed in accordance with the
relevant provisions of the IBCA and the DGCL and shall make all other filings or
recordings required under the IBCA and the DGCL. The Merger shall become
effective at such time as the Articles of Merger is duly filed with the
Secretary of State of the State of Delaware, or at such subsequent date or time
as Sub and Megsinet shall agree and specify in the Articles of Merger (the time
the Merger becomes effective being hereinafter referred to as the "Effective
Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in Section 5/11.50 of the IBCA and Section 259 of the DGCL.
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SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation. The certificate of incorporation of Sub, as in effect immediately
prior to the Effective Time, shall be the certificate of incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law. The by-laws of Sub, as in effect immediately prior to the
Effective Time, shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.6 Directors and Officers. The directors of Sub and the officers
of Megsinet at the Effective Time shall, from and after the Effective Time, be
the directors and officers, respectively, of the Surviving Corporation until
their successors shall have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
certificate of incorporation and the by-laws of the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Megsinet Common Stock, Series 1998A Preferred or Pequot Preferred (collectively,
"Megsinet Capital Stock"):
(a) Cancellation of Treasury Stock. Each share of Megsinet Capital Stock
that is owned by Megsinet shall automatically be cancelled and retired and shall
cease to exist, and no consideration shall be delivered in exchange therefor.
(b) Conversion of Megsinet Common Stock. Subject to Section 2.2(e), each
issued and outstanding share of Megsinet Common Stock (other than shares to be
cancelled in accordance with Section 2.1(a)) shall be converted into the right
to receive either $2.50 in cash
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(the "Cash Consideration") or 0.21 (the "Exchange Ratio") validly issued, fully
paid and nonassessable shares of common stock, par value $.01 per share, and the
associated Series A Junior Participating Preferred Stock Purchase Rights
("CoreComm Common Stock"), of CoreComm, (the "Stock Consideration"). The
allocation of either the Cash Consideration or the Stock Consideration to each
share of Megsinet Common Stock shall be set forth on a schedule to be delivered
to the Exchange Agent at the Effective Time (the "Allocation Schedule"). The
consideration to be issued to holders of Megsinet Capital Stock in the aggregate
is referred to herein as the "Merger Consideration." As of the Effective Time,
all such shares of Megsinet Common Stock shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Megsinet Common Stock
shall cease to have any rights with respect thereto, except the right to receive
Cash Consideration and/or Stock Consideration and any cash in lieu of fractional
shares of CoreComm Common Stock to be issued or paid in consideration therefor
upon surrender of such certificate in accordance with Section 2.2, without
interest.
(c) Conversion of Common Stock of Sub. Each issued and outstanding share of
common stock, par value $.01 per share, of Sub shall be converted into one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(d) Conversion of Megsinet Convertible Securities. Each issued and
outstanding share of Series 1998A Preferred and Pequot Preferred shall be
converted into the right to receive that amount of Cash Consideration and/or
Stock Consideration which would be allocable to the number of shares of Megsinet
Common Stock into which each such share of 1998A Preferred or Pequot Preferred
would be convertible if such Series 1998A Preferred and Pequot Preferred had
been converted into Megsinet Common Stock immediately prior to the Effective
Time. The allocation to the holders of Megsinet Convertible Securities of Cash
Consideration and/or Stock Consideration shall be included on the Allocation
Schedule. The Series 1998A Preferred and Pequot Preferred are referred to
collectively as the "Megsinet Convertible Securities."
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SECTION 2.2 Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, CoreComm shall deposit with the Exchange Agent (who will
mutually be acceptable to CoreComm and Megsinet), for the benefit of the holders
of shares of Megsinet Capital Stock, for exchange in accordance with this
Article II, through the Exchange Agent, the Cash Payment and certificates
representing the Stock Payment together with any dividends or distributions with
respect thereto with a record date after the Effective Time, and any additional
cash (pursuant to Section 2.2(e)), such cash and stock collectively being
hereinafter referred to as the "Exchange Fund" The Cash Payment shall equal
$2.50 multiplied by the product of (i) 0.50 and (ii)the Megsinet Selling Shares.
The Stock Payment shall equal the number of shares of CoreComm Common Stock
represented by 0.21 multiplied by the product of (i) 0.50 and (ii)the Megsinet
Selling Shares. The "Megsinet Selling Shares" shall equal the number of shares
of Megsinet Common Stock issued and outstanding immediately prior to the
Effective Time plus the number of Shares of Megsinet Common Stock into which the
Series 1998A Preferred and the Pequot Preferred would be convertible if
converted immediately prior to the Effective Time.
(b) Exchange Procedures. As soon as reason ably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Megsinet Capital Stock (the "Certificates")
whose shares were converted into the right to receive the Merger Consider ation
pursuant to Section 2.1, (i) a letter of transmit tal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Megsinet and CoreComm may
reasonably specify) and (ii) instructions for use in surrendering the
Certificates in exchange for the Merger Consider ation. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive
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in exchange therefor the Merger Consideration in the form of cash or a
certificate representing that number of whole shares of CoreComm Common Stock
which such holder has the right to receive pursuant to the provisions of this
Article II and as set forth on the Allocation Schedule, certain dividends or
other distributions in accordance with Section 2.2(c) and cash in lieu of any
fractional share of CoreComm Common Stock in accordance with Section 2.2(e), and
the Certificate so surrendered shall forthwith be cancelled. In the event of a
surrender of a Certificate representing shares of Megsinet Capital Stock which
are not registered in the transfer records of Megsinet under the name of the
person surrendering such Certificate, a certificate representing the proper
number of shares of CoreComm Common Stock may be issued to a person other than
the person in whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such issuance shall pay any transfer or other
taxes required by reason of the issuance of shares of CoreComm Common Stock to a
person other than the registered holder of such Certificate or establish to the
satisfaction of CoreComm that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration which the holder thereof
has the right to receive in respect of such Certificate pursuant to the
provisions of this Article II and as set forth on the Allocation Schedule,
certain dividends or other distributions in accordance with Section 2.2(c) and
cash in lieu of any fractional share of CoreComm Common Stock in accordance with
Section 2.2(e). No interest shall be paid or will accrue on any cash payable to
holders of Certificates pursuant to the provisions of this Article II.
Notwithstanding the foregoing, the Exchange Agent will not mail any cash or
shares of CoreComm Common Stock prior to receipt of the Allocation Schedule.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to CoreComm Common Stock with a record date after the
Effective Time shall be paid to the holder of any
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unsurrendered Certificate with respect to the shares of CoreComm Common Stock
represented thereby, and, in the case of Certificates representing the right to
receive a cash payment in lieu of fractional shares of CoreComm Common Stock, no
such cash payment shall be paid to any such holder pursuant to Section 2.2(e),
and all such dividends, other distributions and cash in lieu of fractional
shares of CoreComm Common Stock shall be paid by CoreComm to the Exchange Agent
and shall be included in the Exchange Fund, in each case until the surrender of
such Certificate in accordance with this Article II. Subject to the effect of
applicable escheat or similar laws, following surrender of any such Certificate
there shall be paid to the holder of the certificate represent ing whole shares
of CoreComm Common Stock issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to such
whole shares of CoreComm Common Stock and, in the case of Certificates
representing Megsinet Common Stock, the amount of any cash payable in lieu of a
fractional share of CoreComm Common Stock to which such holder is entitled
pursuant to Section 2.2(e) and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
and with a payment date subsequent to such surrender payable with respect to
such whole shares of CoreComm Common Stock.
(d) No Further Ownership Rights in Megsinet Capital Stock. All shares of
CoreComm Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II and any cash paid pursuant to this
Article II shall be deemed to have been issued (and paid) in full satisfaction
of all rights pertaining to the shares of Megsinet Capital Stock, theretofore
represented by such Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been declared or
made by Megsinet on such shares of Megsinet Common Stock which remain unpaid at
the Effective Time, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of Megsinet
Capital Stock which
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were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Exchange Agent for any reason, they shall be cancelled and exchanged as provided
in this Article II, except as otherwise provided by law.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of CoreComm Common Stock shall be issued upon the surrender
for exchange of Certificates, no dividend or distribution of CoreComm shall
relate to such fractional share interests and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a stockholder of
CoreComm.
(ii) As soon as practicable after receipt of the Allocation Schedule,
the Exchange Agent shall determine, for each former holder of Megsinet
Capital Stock entitled to receive shares of CoreComm Common Stock pursuant
to Article II, an amount in cash equal to the product obtained by
multiplying (A) the fractional share interest to which such former holder
(after taking into account all shares of Megsinet Capital Stock held at the
Effective Time by such holder and the Allocation Schedule) would otherwise
be entitled by (B) the average of the closing prices of the CoreComm Common
Stock as reported on NASDAQ during the ten trading days preceding the fifth
trading day prior to the Closing Date.
(iii) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Certificates formerly representing
Megsinet Capital Stock with respect to any fractional share interests, the
Exchange Agent shall make available such amounts to such holders of
Certificates formerly representing Megsinet Capital Stock subject to and in
accordance with the terms of Section 2.2(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to CoreComm, upon
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demand, and any holders of the Certificates who have not theretofore complied
with this Article II shall thereafter look only to CoreComm for payment of their
claim for Merger Consideration, any dividends or distributions with respect to
CoreComm Common Stock and any cash in lieu of fractional shares of CoreComm
Common Stock.
(g) No Liability. None of CoreComm, Sub, Megsinet, the Surviving
Corporation or the Exchange Agent shall be liable to any person in respect of
any shares of CoreComm Common Stock, any dividends or distributions with respect
thereto, any cash in lieu of fractional shares of CoreComm Common Stock or any
cash from the Exchange Fund, in each case delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by CoreComm, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
CoreComm.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration and, if applicable, any unpaid dividends and distributions
on shares of CoreComm Common Stock deliverable in respect thereof and any cash
in lieu of fractional shares, in each case pursuant to this Agreement.
SECTION 2.3 Certain Adjustments. If between the date hereof and the
Effective Time, the outstanding shares of Megsinet Common Stock or of CoreComm
Common Stock shall be changed into a different number of shares by reason of any
reclassification, recapitalization, split-up, combination or exchange of shares,
or any
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dividend payable in stock or other securities shall be declared thereon with a
record date within such period, the Exchange Ratio shall be adjusted accordingly
to provide to the holders of Megsinet Common Stock the same economic effect as
contemplated by this Agreement prior to such reclassification, recapitalization,
split-up, combination, exchange or dividend.
SECTION 2.4 Shares of Dissenting Stockholders. Notwithstanding anything in
this Agreement to the contrary, any shares of Megsinet Common Stock that are
issued and outstanding as of the Effective Time and that are held by a
stockholder who has exercised his right (to the extent such right is available
by law) to demand and to receive the fair value of such shares (the "Dissenting
Shares") under the IBCA shall not be converted into the right to receive the
Merger Consideration unless and until the holder shall have failed to perfect,
or shall have effectively withdrawn or lost, his right to dissent from the
Merger under the IBCA and to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to and subject to the
requirements of the IBCA. If any such holder shall have so failed to perfect or
have effectively withdrawn or lost such right, each share of such holder's
Megsinet Common Stock shall thereupon be deemed to have been converted into and
to have become, as of the Effective Time, without any interest thereon, the
right to receive the Merger Consideration, and, in such regard, shall be treated
as shares of Megsinet Common Stock for which Stock Consideration and Cash
Consideration are allocated on an equal basis without affecting the allocation
provided for on the Allocation Schedule. Megsinet shall give CoreComm (i) prompt
notice of any notice or demands for appraisal or payment for shares of Megsinet
Common Stock received by Megsinet and (ii) the opportunity to participate in and
direct all negotiations and proceedings with respect to any such demands or
notices. Megsinet shall not, without the prior written consent of CoreComm, make
any payment with respect to, or settle, offer to settle or otherwise negotiate,
any such demands.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Megsinet. Except as disclosed
in the Disclosure Schedule delivered by Megsinet to CoreComm prior to the
execution of this Agreement (the "Megsinet Disclosure Schedule") and making
reference to the particular subsection of this Agreement to which exception is
being taken, Megsinet and, to the best of each of their knowledge the
Significant Stockholders, represents and warrants to CoreComm as follows:
(a) Organization, Standing and Corporate Power. (i) Each of Megsinet and
its subsidiaries (as defined in Section 8.3) is a corporation or other legal
entity duly organized, validly existing and in good standing (with respect to
jurisdictions which recognize such concept) under the laws of the jurisdiction
in which it is organized and has the requisite corporate or other power, as the
case may be, and authority to carry on its business as now being conducted,
except, as to subsidiaries, for those jurisdictions where the failure to be so
organized, existing or in good standing individually or in the aggregate would
not have a material adverse effect (as defined in Section 8.3) on Megsinet. Each
of Megsinet and its subsidiaries is duly qualified or licensed to do business
and is in good standing (with respect to jurisdictions which recognize such
concept) in each jurisdiction in which the nature of its business or the
ownership, leasing or operation of its properties makes such qualification or
licensing necessary, except for those jurisdictions where the failure to be so
qualified or licensed or to be in good standing individually or in the aggregate
would not have a material adverse effect on Megsinet.
(ii) Megsinet has delivered to CoreComm prior to the execution of this
Agreement complete and correct copies of its articles of incorporation and
by-laws, as amended to date.
(iii) In all material respects, the minute books of Megsinet contain
accurate records of all
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meetings and accurately reflect all other actions taken by the
stockholders, the Board of Directors and all committees of the Board of
Directors of Megsinet since January 1, 1995.
(b) Subsidiaries. Section 3.1(b) of the Megsinet Disclosure Schedule lists
all of the subsidiaries of Megsinet. All the outstanding shares of capital stock
of, or other equity interests in, each such subsidiary have been validly issued
and are fully paid and nonassessable and are owned directly or indirectly by
Megsinet, free and clear of all pledges, claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever (collectively, "Liens")
and free of any other restriction (including any restriction on the right to
vote, sell or otherwise dispose of such capital stock or other ownership
interests).
(c) Capital Structure. The authorized capital stock of Megsinet consists of
30,000,000 shares of Megsinet Common Stock and 3,000,000 shares of Megsinet
preferred stock. Section 3.1(c) of the Megsinet Disclosure Schedule sets forth
the capital structure of Megsinet and a complete and correct list, as of
February 2, 1999, of the number of shares of Megsinet capital stock issued and
outstanding, reserved for issuance, or subject to employee stock options or
other rights to purchase or receive Megsinet Common Stock granted to employees,
consultants or directors under the Megsinet Stock Plan and the non-qualified
plan or otherwise (collectively, "Megsinet Stock Options"), the dates of grant
and exercise prices thereof. All outstanding shares of capital stock of Megsinet
are, and all shares which may be issued will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Except as set forth in this Section 3.1(c) or Section 3.1(c) of the
Megsinet Disclosure Schedule and except for changes since February 2, 1999
resulting from the issuance of shares of Megsinet Common Stock pursuant to the
Megsinet Stock Options or conversion of the Megsinet Convertible Securities, (x)
there are not issued, reserved for issuance or outstanding (A) any shares of
capital stock or other voting securities of Megsinet, (B) any securities of
Megsinet or any Megsinet subsidiary convertible into or exchangeable or
exercis-
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able for shares of capital stock or voting securities of Megsinet, (C) any
warrants, calls, options or other rights to acquire from Megsinet or any
Megsinet subsidiary, and any obligation of Megsinet or any Megsinet subsidiary
to issue, any capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of Megsinet,
and (y) there are no outstanding obligations of Megsinet or any subsidiary of
Megsinet to repurchase, redeem or otherwise acquire any such securities or to
issue, deliver or sell, or cause to be issued, delivered or sold, any such
securities. There are no outstanding (A) securities of Megsinet or any Megsinet
subsidiary convertible into or exchangeable or exercisable for shares of capital
stock or other voting securities or ownership interests in any Megsinet
subsidiary, (B) warrants, calls, options or other rights to acquire from
Megsinet or any Megsinet subsidiary, and any obligation of Megsinet or any
Megsinet subsidiary to issue, any capital stock, voting securities or other
ownership interests in, or any securities convertible into or exchangeable or
exercisable for any capital stock, voting securities or ownership interests in,
any Megsinet subsidiary or (C) obligations of Megsinet or any Megsinet
subsidiary to repurchase, redeem or otherwise acquire any such outstanding
securities of Megsinet subsidiaries or to issue, deliver or sell, or cause to be
issued, delivered or sold, any such securities. Neither Megsinet nor any
Megsinet subsidiary is a party to any agreement restricting the transfer of,
relating to the voting of, requiring registration of, or granting any preemptive
or, except as provided by the terms of the Megsinet Stock Options and the
Megsinet Convertible Securities, antidilutive rights with respect to, any
securities of the type referred to in the two preceding sentences. Other than
the Megsinet subsidiaries, Megsinet does not directly or indirectly beneficially
own any securities or other beneficial ownership interests in any other entity
except for non-controlling investments made in the ordinary course of business
in entities which are not individually or in the aggregate material to Megsinet
and its subsidiaries as a whole.
(d) Authority; Noncontravention. Megsinet has all requisite corporate power
and authority to enter into
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this Agreement and, subject, in the case of the Merger, to the Megsinet
Stockholder Approval (as defined in Section 3.1(k)) to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by Megsinet and the consummation by Megsinet of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Megsinet, subject, in the case of the Merger, to
the Megsinet Stockholder Approval. This Agreement has been duly executed and
delivered by Megsinet and, assuming the due authorization, execution and
delivery by CoreComm and Sub, constitutes the legal, valid and binding
obligation of Megsinet, enforceable against Megsinet in accordance with its
terms. The execution and delivery of this Agreement do not, and the consummation
of the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or loss of a benefit under, or result in the creation of any Lien upon any of
the properties or assets of Megsinet or any of its subsidiaries under, (i) the
articles of organization or by-laws of Megsinet or the comparable organizational
documents of any of its subsidiaries, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license or similar authorization applicable to Megsinet
or any of its subsidiaries or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Megsinet or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights, losses or Liens that
individually or in the aggregate would not (x) have a material adverse effect on
Megsinet or (y) reasonably be expected to impair the ability of Megsinet to
perform its obligations under this Agreement. Except as may be required pursuant
to the Hart-Scott-Rodino Antitrust Improvement Act of 1976, and the rules and
regulations thereunder, or any successor law, rules or regulations
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(the "HSR Act") (as to which Megsinet makes no representations or warranties),
no consent, approval, order or authorization of, action by or in respect of, or
registration, declaration or filing with, any federal, state, local or foreign
government, any court, administrative, regulatory or other governmental agency,
commission or authority or any nongovernmental self-regulatory agency,
commission or authority (a "Governmental Entity") is required by or with respect
to Megsinet or any of its subsidiaries in connection with the execution and
delivery of this Agreement by Megsinet or the consummation by Megsinet of the
transactions contemplated by this Agreement, except for the filing of a
Registration Statement on Form S-4 with the Securities and Exchange Commission
("SEC") in accordance with the Securities Act of 1933, as amended (the
"Securities Act"), the filing of the Articles of Merger with the Secretary of
State of Illinois and the Secretary of State of Delaware and such filings with
Governmental Entities to satisfy the applicable requirements of state securities
or "blue sky" laws.
(e) Financial Statements; Undisclosed Liabilities. The audited and
unaudited financial statements of Megsinet provided on Schedule 3.1(e) of the
Megsinet Disclosure Schedule comply as to form, as of their respective dates, in
all material respects with applicable accounting requirements, have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Megsinet and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and the absence of
footnotes). Except (i) as reflected in such financial statements or in the notes
thereto; (ii) for liabilities incurred in connection with this Agreement or the
transactions contemplated hereby; (iii) for liabilities incurred in the ordinary
course from Cisco or Ascend neither Megsinet nor any of its subsidiaries has any
liabilities or obligations of any nature which, individually or in the
aggregate, would have a material adverse effect on Megsinet.
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(f) Absence of Certain Changes or Events. Except for liabilities incurred
in connection with this Agreement or the transactions contemplated hereby and
except as permitted by Section 4.1(a), since September 30, 1998, Megsinet and
its subsidiaries have conducted their business only in the ordinary course and,
since January 1, 1998, there has not been (i) any material adverse change (as
defined in Section 8.3) in Megsinet, (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of Megsinet's capital stock, (iii) any split,
combination or reclassification of any of Megsinet's capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of Megsinet's capital stock, except
for issuances of Megsinet Common Stock upon conversion of Megsinet Convertible
Securities, upon the exercise of Megsinet Stock Options (awarded prior to the
date hereof) in accordance with their present terms, (iv)(A) any granting by
Megsinet or any of its subsidiaries to any current or former director, executive
officer or other key employee of Megsinet or its subsidiaries of any increase in
compensation, bonus or other benefits, except for normal increases as a result
of promotions, normal increases of base pay in the ordinary course of business
or as was required under any employment agreements in effect as of January 1,
1998, (B) any granting by Megsinet or any of its subsidiaries to any such
current or former director, executive officer or key employee of any increase in
severance or termination pay, or (C) any entry by Megsinet or any of its
subsidiaries into, or any amendment of, any employment, deferred compensation,
consulting, severance, termination or indemnification agreement with any such
current or former director, executive officer or key employee, (v) except
insofar as or required by a change in GAAP, any change in accounting methods,
principles or practices by Megsinet materially affecting its assets, liabilities
or business, (vi) any tax election that individually or in the aggregate would
have a material adverse effect on Megsinet or any of its tax attributes or any
settlement or compromise of any material income tax liability, or (vii) any
action taken by Megsinet or any of its subsidiaries during the period
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from September 30, 1998 through the date of this Agreement that, if taken during
the period from the date of this Agreement through the Effective Time would
constitute a breach of Section 4.1(a).
(g) Compliance with Applicable Laws; Litigation. (i) Megsinet and its
subsidiaries hold all permits, licenses, variances, exemptions, orders,
registrations and approvals of all Governmental Entities which are required for
the operation of the businesses of Megsinet and its subsidiaries (the "Megsinet
Permits"), except where the failure to have any such Megsinet Permits
individually or in the aggregate would not have a material adverse effect on
Megsinet. Megsinet and its subsidiaries are in compliance with the terms of the
Megsinet Permits and all applicable statutes, laws, ordinances, rules and
regulations (including, without limitation, laws relating to environmental or
occupational health and safety conditions or standards), except where the
failure so to comply individually or in the aggregate would not have a material
adverse effect on Megsinet. As of the date of this Agreement, no action, demand,
requirement or investigation by any Governmental Entity and no suit, action or
proceeding by any person, in each case with respect to Megsinet or any of its
subsidiaries or any of their respective properties is pending or, to the
knowledge (as defined in Section 8.3) of Megsinet, threatened, other than, in
each case, those the outcome of which individually or in the aggregate would not
(A) have a material adverse effect on Megsinet or (B) reasonably be expected to
impair the ability of Megsinet to perform its obligations under this Agreement
or prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement.
(ii) Neither Megsinet nor any subsidiary of Megsinet is subject to any
outstanding order, injunction or decree which has had or, insofar as can be
reasonably foreseen, individually or in the aggregate will have a material
adverse effect on Megsinet.
(h) Absence of Changes in Benefit Plans. Megsinet has delivered to CoreComm
true and complete copies of (i) all severance and employment agreements of
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Megsinet with directors, executive officers or employees, (ii) all severance or
termination pay programs and policies of each of Megsinet and each Megsinet
subsidiary, (iii) all plans or arrangements of Megsinet and each Megsinet
subsidiary relating to its employees which contain change in control or similar
provisions and (iv) all Megsinet Benefit Plans (as defined below). Since January
1, 1998 there has not been any adoption or amendment in any material respect by
Megsinet or any of its subsidiaries of any collective bargaining agreement,
employment agreement, consulting agreement, severance agreement or any material
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock bonus, stock option, phantom stock,
equity compensation, retirement, vacation, severance, life insurance,
disability, death benefit, hospitalization, medical, surgical or other plan,
arrangement or understanding providing benefits to any current or former
employee, officer or director of Megsinet or any of its wholly owned
subsidiaries including, without limitation, each "employee benefit plan" within
the meaning of Section 3(s) of ERISA (as defined below) sponsored, reinstalled,
contributed to by or required to be contributed by for the benefit of the
employees or former employees of Megsinet or a Megsinet subsidiary by Megsinet
or by any trade or business, whether or not incorporated (an "ERISA Affiliate")
that together with Megsinet would be deemed a Single Employer within the meaning
of Section 4001(b) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (collectively, the "Megsinet Benefit Plans"), or any material
change in any actuarial or other assumption used to calculate funding
obligations with respect to any Megsinet pension plans, or any material change
in the manner in which contributions to any Megsinet pension plans are made or
the basis an which such contributions are determined and there is no commitment,
plan or promise to make any such material change, other than as contemplated by
this Agreement.
(i) ERISA Compliance. (i) Except where such would not, individually or in
the aggregate, have a material adverse effect on Megsinet, with respect to the
Megsinet Benefit Plans, no event has occurred and, to the knowledge of Megsinet,
there exists no condition or set
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<PAGE>
of circumstances, in connection with which Megsinet or any of its subsidiaries
could be subject to any liability under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), the Code or any other applicable law.
(ii) Except where such would not, individually or in the aggregate,
have a material adverse effect on Megsinet, each Megsinet Benefit Plan has
been administered in accordance with its terms. Megsinet, its subsidiaries
and all the Megsinet Benefit Plans have been operated, and are, in
compliance with the applicable provisions of ERISA, the Code and all other
applicable laws and the terms of all applicable collective bargaining
agreements, except for any failures to be in such compliance that
individually or in the aggregate would not have a material adverse effect
on Megsinet. Each Megsinet Benefit Plan that is intended to be qualified
under Section 401(a) or 401(k) of the Code has received a favorable
determination letter from the IRS that it is so qualified and each trust
established in connection with any Megsinet Benefit Plan that is intended
to be exempt from federal income taxation under Section 501(a) of the Code
has received a determination letter from the IRS that such trust is so
exempt. To the knowledge of Megsinet, no fact or event has occurred since
the date of any determination letter from the IRS which is reasonably
likely to affect adversely the qualified status of any such Megsinet
Benefit Plan or the exempt status of any such trust.
(iii) No Megsinet Benefit Plan or any "pension" plan fund or program
(within the meaning of Section 3(2) of ERISA) of an ERISA Affiliate is or
has ever been subject to Title IV of ERISA.
(iv) No Megsinet Benefit Plan provides medical benefits (whether or
not insured), with respect to current or former employees after retirement
or other termination of service (other than coverage mandated by applicable
law or benefits, the full cost of which is borne by the current or former
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employee) other than individual arrangements the amounts of which are not
material.
(v) As of the date of this Agreement, neither Megsinet nor any of its
subsidiaries is a party to any collective bargaining or other labor union
contract applicable to persons employed by Megsinet or any of its
subsidiaries and no collective bargaining agreement is being negotiated by
Megsinet or any of its subsidiaries. As of the date of this Agreement,
there is no labor dispute, strike or work stoppage against Megsinet or any
of its subsidiaries pending or, to the knowledge of Megsinet, threatened
which may interfere with the respective business activities of Megsinet or
any of its subsidiaries, except where such dispute, strike or work stoppage
individually or in the aggregate would not have a material adverse effect
on Megsinet. As of the date of this Agreement, to the knowledge of
Megsinet, none of Megsinet, any of its subsidiaries or any of their
respective representatives or employees has committed any material unfair
labor practice in connection with the operation of the respective
businesses of Megsinet or any of its subsidiaries, and there is no material
charge or complaint against Megsinet or any of its subsidiaries by the
National Labor Relations Board or any comparable governmental agency
pending or, to the knowledge of Megsinet, threatened in writing.
(vi) No employee of Megsinet will be entitled to any material payment,
additional benefits or any acceleration of the time of payment or vesting
of any benefits under any Megsinet Benefit Plan as a result of the
transactions contemplated by this Agreement (either alone or in conjunction
with any other event such as a termination of employment)
(vii) Neither Megsinet, nor any subsidiary, any Megsinet Benefit Plan,
any trust created thereunder, or any trustee or administrator thereof has
engaged in a transaction in connection with which Megsinet or any
subsidiary, any Megsinet Benefit Plan, any such trust, or any trustee or
administrator thereof, or any party dealing with any
20
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Megsinet Benefit Plan or any such trust could be subject to either a civil
penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax
imposed pursuant to Section 4975 or 4976 of the Code.
(viii) No amounts payable under the Megsinet Benefit Plans will fail
to be deductible for federal income tax purposes by virtue of Section
162(a)(1) or 162(m) of the Code.
(ix) There has been no material failure of a Megsinet Benefit Plan
that is a group health plan (as defined in Section 5000(b)(1) of the Code)
to meet the requirements of Section 4980B(f) of the Code with respect to a
qualified beneficiary (as defined in Section 4980B(g) of the Code). Neither
Megsinet nor any subsidiary has contributed to a nonconforming group health
plan (as defined in Section 5000(c) of the Code) and no ERISA Affiliate of
Megsinet or any subsidiary has incurred a tax under Section 5000(e) of the
Code which is or could become a liability of Megsinet or a subsidiary.
There are no pending, or to the knowledge of Megsinet, threatened or
anticipated claims by or on behalf of any Megsinet Benefit Plan, by any
employee or beneficiary covered under any such Megsinet Benefit Plan, or
otherwise involving any such Megsinet Benefit Plan (other than routine
claims for benefits).
(j) Taxes. (1) Megsinet and its subsidiaries have filed all material Tax
Returns (as defined herein) required to be filed by them and all such Tax
Returns are complete and correct in all material respects, or requests for
extensions to file such Tax Returns have been timely filed, granted and have not
expired. Megsinet and its subsidiaries have paid or have made provision for the
payment of all Taxes (as defined herein) shown as due on such Tax Returns.
Neither Megsinet nor its subsidiaries has made, or is subject to, an election
under Section 341 of the Code.
(2) No deficiencies for any Taxes have been proposed, asserted or
assessed against Megsinet or any of its subsidiaries that are not
adequately
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reserved for, except for deficiencies that individually or in the aggregate
would not have a material adverse effect on Megsinet. No federal, state,
local or foreign audits or other administrative proceedings or court
proceedings are presently pending with regard to any Taxes of Megsinet or
any of its subsidiaries.
(3) No claim has ever been made by an authority in a jurisdiction
where Megsinet has not filed Tax Returns that it or any of its subsidiaries
is or may be subject to taxation by that jurisdiction.
(4) Neither Megsinet nor any of its subsidiaries has any obligation to
make a payment that will not be deductible under Section 280G of the Code
or Megsinet will satisfy all the requirements of Section 280G(b)(5)(B) of
the Code and Prop. Treas. Reg. Section 1.280G-1(Q&A-7) such that Section
280G will not apply to any payments to be made by Megsinet or any of its
subsidiaries.
(5) Neither Megsinet nor any of its subsidiaries have (A) been a
member of an affiliated group as defined under Section 1504 of the Code
(other than an affiliated group of which the common parent was Megsinet)
and (B) any liability for Taxes of any person (other than Megsinet or any
of its subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract or otherwise.
(6) As used in this Agreement, "Taxes" shall include all (x) federal,
state, local or foreign income, property, occupation, sales, use, service
occupation, service use, leasing, leasing use, excise, withholding,
transfer, recording and other taxes or similar governmental charges,
including any interest, penalties or additions with respect thereto, and
(y) "Tax Return" shall mean any report, return, document, declaration,
information, return or filing (including any related or supporting
information) with respect to Taxes.
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(7) (A) The aggregate fair market value of the Merger Consideration
(including any cash paid for fractional shares) will be approximately equal
to the fair market value of Megsinet stock surrendered therefor. The Merger
Consideration will be the sole consideration received for each such
shareholder's Megsinet Capital Stock, and the Megsinet Capital Stock
surrendered in exchange therefor will be the sole consideration delivered
by such shareholder for the Merger Consideration and the terms of such
exchange were arrived at through arm's length negotiations.
(B) There is no intercorporate indebtedness existing between CoreComm
(or any of its subsidiaries, including Sub) and Megsinet that was issued,
acquired, or will be settled at a discount.
(C) Megsinet is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(D) At the Effective Time, Sub will acquire at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Megsinet immediately prior to the
Merger (for purposes of this representation, amounts used by Megsinet to
pay its reorganization expenses, cash paid in lieu of fractional shares,
and cash used to pay dissenters and to make all redemptions and
distributions by Megsinet immediately preceding the transfer will be
included as assets of Megsinet held immediately prior to the Merger) (the
"Substantially All Test").
(E) No assets of Megsinet have been or are proposed to be sold,
transferred or otherwise disposed of that would prevent Megsinet from
continuing the historic business of Megsinet or using a significant portion
of Megsinet's historic business assets in a business.
(F) The payment of cash in lieu of fractional shares of CoreComm
Common Stock is solely
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for the purpose of avoiding the expense and inconvenience to CoreComm of
issuing fractional shares of CoreComm Common Stock and does not represent
separately bargained-for consideration. The total cash consideration to be
paid in the Merger in lieu of fractional shares of CoreComm capital stock
will not exceed one percent of the total consideration in the Merger.
(G) (I) none of the compensation for services to Megsinet received (or
to be received) by any shareholder of Megsinet will be separate
consideration for, or allocable to, any of his Megsinet Capital Stock; (II)
none of the CoreComm Common Stock received by any shareholder of Megsinet
pursuant to the Merger will be separate consideration for, or allocable to,
any employment, service or noncompetition agreement or arrangement; and
(III) the compensation paid to any shareholder of Megsinet who also
provides services to Megsinet will be commensurate with amounts that would
be paid to a third party bargaining at arm's length for similar services.
(H) Except as specifically set forth herein, Megsinet and the
shareholders of Megsinet will each pay their respective expenses, if any,
incurred in connection with the Merger and the transactions related hereto.
(I) (I) On the date hereof, there is no plan or intention on the part
of the Significant Stockholders, or to the knowledge of Megsinet or the
Significant Stockholders, any other shareholders of Megsinet to sell,
exchange, transfer by gift or otherwise dispose of any shares of CoreComm
Common Stock to be received pursuant to the Merger or to enter into any
transactions which would have the economic effect of a disposition of such
Shares including, but not limited to, any transactions described in Section
1259 of the Code or any other put, forward sale, short-sale or equity swap
types of arrangements, with respect to any such shares of CoreComm Common
Stock to be received pursuant to the Merger, (II) neither Megsinet nor any
person related
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to Megsinet within the meaning of Treas. Reg. Section 1.368-1(e)(3), nor
any predecessor or successor of Megsinet within the meaning of Treas. Reg.
Section 1.368-1(e)(5), has acquired or will acquire Megsinet Capital Stock
in contemplation of, or as part of, the Merger, and (III) Megsinet has not
made and will not make any distributions with respect to its stock in
contemplation of, or with respect to the Merger.
(J) The liabilities of Megsinet to be assumed by Sub and the
liabilities to which the transferred assets of Megsinet are subject were
incurred by Megsinet in the ordinary course of its business.
(K) The fair market value of the assets of Megsinet transferred to Sub
will equal or exceed the sum of the liabilities assumed by Sub, plus the
amount of liabilities, if any, to which the transferred assets are subject.
(L) Megsinet is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(M) Megsinet has no plan or intention to issue additional shares of
its stock (or securities, options or instruments giving the holder right to
such stock) that would (or if exercised would) result in CoreComm losing
control of Megsinet within the meaning of Section 368(c) of the Code. At
the time of the Merger, Megsinet will not have outstanding any warrants,
options convertible securities or any other type of right pursuant to which
any person could acquire stock in Megsinet that, if exercised or converted,
would affect CoreComm's acquisition or retention of control of Megsinet or
its successor, as defined in Section 368(c) of the Code.
(N) Apart from the Megsinet Capital Stock, the Ascend Warrant, the
Pequot Warrant, and conversion rights held by CISCO Systems, Inc., and
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the options described in Section 5.5 hereof, Megsinet has no outstanding
stock or debt that could be treated as equity for Federal income tax
purposes.
(O) Neither Megsinet nor any affiliate of Megsinet has any plan or
intention of taking any action prior to, at or after the Effective Time
that is contrary to any of representations of this Section 3.1(j)(7).
(k) Voting Requirements. The affirmative vote at the Megsinet Stockholders
Meeting (the "Megsinet Stockholder Approval") of the holders of two-thirds of
all outstanding shares of Megsinet Common Stock and 60% of all outstanding
shares of Series 1998A Preferred and 100% of the outstanding shares of Pequot
Preferred to adopt this Agreement are the only votes of the holders of any class
or series of Megsinet's capital stock necessary to approve and adopt this
Agreement and the transactions contemplated hereby, including the Merger. The
affirmation vote of the holders of a majority of all outstanding shares of
Megsinet Common Stock are the only votes of the holders of any class or series
of Megsinet's capital stock necessary to approve an amendment to Megsinet's
Articles of Incorporation necessary to reduce to a majority the number of shares
of Megsinet Common Stock required to vote affirmatively to adopt this Agreement
and the transactions contemplated hereby (the "Reduced Vote").
(l) Intellectual Property. Megsinet and its subsidiaries own or have a
valid license to use all trademarks, service marks, trade names, patents and
copyrights (including any registrations or applications for registration of any
of the foregoing) (collectively, the "Megsinet Intellectual Property") necessary
to carry on its business substantially as currently conducted, except for such
Megsinet Intellectual Property (i) the failure of which to own or validly
license individually or in the aggregate would not have a material adverse
effect on Megsinet or (ii) which is "off the shelf" or "shrink-wrapped"
software. Neither Megsinet nor any such subsidiary has received any notice of
infringement of or conflict with, and, to Megsinet's knowledge, there are no
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infringements of or conflicts (i) with the rights of others with respect to the
use of, or (ii) by others with respect to, any Megsinet Intellectual Property
that individually or in the aggregate, in either such case, would have a
material adverse effect on Megsinet.
(m) Certain Contracts. Except for contracts and agreements set forth in
Section 3.1(m) of the Megsinet Disclosure Schedule, neither Megsinet nor any of
its subsidiaries is a party to or bound by (i) any contract providing for the
receipt or payment of more than $20,000 per 12 month period other than those
covered by the fourth sentence hereof, (ii) any lease of real or personal
property for more than $20,000 per 12 month period, (iii) any non-competition
agreement or any other agreement or obligation which purports to limit in any
material respect the manner in which, or the localities in which, all or any
material portion of the business of Megsinet and its subsidiaries (including,
for purposes of this Section 3.1(m), CoreComm and its subsidiaries, assuming the
Merger has taken place), taken as a whole, is or would be conducted, or (iv) any
contract or other agreement which would prohibit or materially delay the
consummation of the Merger or any of the transactions contemplated by this
Agreement (all contracts of the type described in clauses (i) and (ii) being
referred to herein as "Megsinet Material Contracts"). Each Megsinet Material
Contract is valid and binding on Megsinet (or, to the extent an Megsinet
subsidiary is a party, such subsidiary) and is in full force and effect, and
Megsinet and each Megsinet subsidiary have in all material respects performed
all obligations required to be performed by them to date under each Megsinet
Material Contract, except where such noncompliance, individually or in the
aggregate, would not have a material adverse effect on Megsinet. Neither
Megsinet nor any Megsinet subsidiary knows of, or has received notice of, any
violation or default under (nor, to the knowledge of Megsinet, does there exist
any condition which with the passage of time or the giving of notice or both
would result in such a violation or default under) any Megsinet Material
Contract except where such violation or default would not have a material
adverse effect on Megsinet. In addition, Megsinet has provided to CoreComm a
complete list as of December 31, 1998 of all charges related to Megsinet's
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circuits which includes all charges incurred under any interconnection and/or
service agreements between Megsinet and any telecommunications company (the
"Circuit Schedule"). Megsinet has also provided in Section 3.1(m) of the
Megsinet Disclosure Schedule, a complete list of any provisions of any
agreements reflected on the Circuit Schedule that provide for (i) materially
different pricing terms than the majority of the agreements on the Circuit
Schedule; (ii) "take or pay" commitments over $100,000 annually; (iii) payment
of more than $75,000 per 12 month period or (iv) terms that could, individually
or in the aggregate, have a material adverse effect on Megsinet.
(n) Subscribers. As of the Effective Time, Megsinet will have at least
40,000 Subscribers. As used herein, the term "Subscriber" means a customer of
Megsinet who (i) is currently connected to and receiving internet access
services from the system and (ii) is being charged and is paying for such
services.
(o) Fixed Assets. Schedule 3.1(o) to the Megsinet Disclosure Schedule sets
forth a summary by category of all fixed assets owned by Megsinet. Such assets
are owned by Megsinet free and clear of any Liens, except for such Liens or
defects which, individually or in the aggregate, would not have a material
adverse effect on Megsinet.
(p) Brokers; Legal Expenses. No broker, investment banker, financial
advisor or other person, other than Mitchell Marks, the fees and expenses of
which will be paid by Megsinet's stockholders and will not exceed $250,000, is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Megsinet or any stockholder of
Megsinet. In addition, the fees payable to the law firm of Gallop Johnson and
Neuman L.C. related to the transactions comtemplated herein shall be paid by
Megsinet's stockholders.
(q) Registration Statement; Proxy/Prospectus. The information supplied by
Megsinet for inclusion in the
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registration statement on Form S-4 pursuant to which shares of CoreComm Common
Stock issued in the Merger will be registered with the SEC (the "Registration
Statement"), shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not misleading. The
information supplied by Megsinet for inclusion in the Proxy/Prospectus (the
"Proxy/Prospectus") to be sent to the stockholders of Megsinet in connection
with the solicitation of votes to approve and adopt this Agreement shall not, on
the date the Proxy/Prospectus is first mailed to stockholders of Megsinet or at
the Effective Time, contain any statement which, at such time and in light of
the circumstances under which it is made, is false or misleading with respect to
any material fact, or omit to state any material fact necessary in order to make
the statements made in the Proxy/Prospectus not false or misleading or necessary
to correct any statement in any earlier communication with respect to the
solicitation of votes which has become false or misleading.
(r) Escrow of Irrevocable Proxies. As of the date hereof, the certificates
of shares of Megsinet Common Stock representing all of the shares of Megsinet
Common Stock that are subject to irrevocable proxies entered into between
certain Megsinet stockholders and CoreComm (the "Voting Proxies"), other than
for shares owned by Michael Henry, have been delivered to Douglas J. Bates as
escrow agent. A certification of such physical possession by Douglas J. Bates is
attached hereto as Annex B.
(s) Voting Proxies. The Voting Proxies obtained by CoreComm when combined
with the shares intended to be issued to Pequot represent more than 50% of the
shares of Megsinet Common Stock entitled to vote on the Merger.
(t) Year 2000 Readiness Disclosure. Other
than "off the shelf" or "shrink wrapped" products, all of
the computer software programs (including without limita-
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tion software provided by Technology Applications Incorporated or Sun
Microsystems), databases, and compilations, computer firmware; computer hardware
(whether general or special purpose), and other similar or related items of
automated, computerized, and/or software system(s) that are to be used or relied
on by Megsinet or any of its subsidiaries in the conduct of their respective
businesses will not malfunction, will not cease to function, will not generate
incorrect data, and will not provide incorrect results when processing,
providing, and/or receiving date-related data into and between the twentieth and
twenty-first centuries as a result of the transition between such centuries.
SECTION 3.2 Representations and Warranties of CoreComm. Except as disclosed
in the CoreComm SEC Documents (as defined in Section 3.2(e)) or as set forth on
the Disclosure Schedule delivered by CoreComm to Megsinet prior to the execution
of this Agreement (the "CoreComm Disclosure Schedule") and making reference to
the particular subsection of this Agreement to which exception is being taken,
CoreComm represents and warrants to Megsinet as follows:
(a) Organization, Standing and Corporate Power. Each of CoreComm and its
subsidiaries (including Sub) is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to jurisdictions
which recognize such concept) under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case may be,
and authority to carry on its business as now being conducted, except, as to
subsidiaries, for those jurisdictions where the failure to be so organized,
existing or in good standing individually or in the aggregate would not have a
material adverse effect on CoreComm. Each of CoreComm and its subsidiaries is
duly qualified or licensed to do business and is in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its properties
makes such qualification or licensing necessary, except for those jurisdictions
where the failure to be so qualified or licensed or to be in good
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standing individually or in the aggregate would not have a material adverse
effect on CoreComm.
(b) Subsidiaries. All the outstanding shares of capital stock of, or other
equity interests in, each Subsidiary of CoreComm have been validly issued and
are fully paid and nonassessable and are owned directly or indirectly by
CoreComm, free and clear of all Liens and free of any other restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests).
(c) Capital Structure. The authorized capital stock of CoreComm consists of
75,000,000 shares of CoreComm Common Stock, par value $.01 per share and
1,000,000 shares of Series A Junior Participating Preferred Stock, par value
$.01 per share. At the close of business on February 3, 1999: (i) 13,199,586
shares of CoreComm Common Stock were issued and outstanding; (ii) zero shares of
CoreComm Common Stock were held by CoreComm in its treasury; (iii) 1,603,878
shares of CoreComm Common Stock were subject to options issued under CoreComm
employee option plans or agreements; and (iv) 2,735,125 shares of CoreComm
Common Stock were subject to warrants issued under a CoreComm employee option
plans or agreements. All outstanding shares of capital stock of CoreComm are,
and all shares which may be issued pursuant to this Agreement or otherwise will
be, when issued, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. Except as set forth in this Section 3.2(c)
and except for changes since resulting from the issuance of shares of CoreComm
Common Stock pursuant to the CoreComm option plans, as of the date hereof, (x)
there are not issued, reserved for issuance or outstanding (A) any shares of
capital stock or other voting securities of CoreComm, (B) any securities of
CoreComm or any CoreComm subsidiary convertible into or exchangeable or
exercisable for shares of capital stock or voting securities of CoreComm, (C)
any warrants, calls, options or other rights to acquire from CoreComm or any
CoreComm subsidiary, and any obligation of CoreComm or any CoreComm subsidiary
to issue, any capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of
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CoreComm, and (y) there are no outstanding obligations of CoreComm or any
CoreComm subsidiary to repurchase, redeem or otherwise acquire any such
securities or to issue, deliver or sell, or cause to be issued, delivered or
sold, any such securities. As of the date hereof, there are no outstanding (A)
securities of CoreComm or any CoreComm subsidiary convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities or ownership interests in any CoreComm subsidiary, (B) warrants,
calls, options or other rights to acquire from CoreComm or any CoreComm
subsidiary, and any obligation of CoreComm or any CoreComm subsidiary to issue,
any capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable or exercisable for any capital
stock, voting securities or ownership interests in, any CoreComm subsidiary or
(C) obligations of CoreComm or any CoreComm subsidiary to repurchase, redeem or
otherwise acquire any such outstanding securities of CoreComm subsidiaries or to
issue, deliver or sell, or cause to be issued, delivered or sold, any such
securities.
(d) Authority; Noncontravention. CoreComm and Sub each has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by each of CoreComm and Sub and the consummation by each of CoreComm
and Sub of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of CoreComm and Sub.
This Agreement has been duly executed and delivered by each of CoreComm and Sub
and, assuming the due authorization, execution and delivery by Megsinet,
constitutes the legal, valid and binding obligations of each of CoreComm and
Sub, enforceable against each of CoreComm and Sub in accordance with its terms.
The execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
of this Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of a benefit under, or result in the creation of any Lien upon any of the
properties or assets of
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CoreComm or any of its subsidiaries (including Sub) under, (i) the memorandum of
association or by-laws of CoreComm or the comparable organizational documents of
any of its subsidiaries (including Sub), (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license or similar authorization applicable to CoreComm
or any of its subsidiaries (including Sub) or their respective properties or
assets or (iii) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to CoreComm or any of its subsidiaries
(including Sub) or their respective properties or assets, other than, in the
case of clauses (ii) and (iii), any such conflicts, violations, defaults,
rights, losses or Liens that individually or in the aggregate would not (x) have
a material adverse effect on CoreComm or (y) reasonably be expected to impair
the ability of CoreComm to perform its obligations under this Agreement. To the
best of CoreComm's knowledge, except as may be required pursuant to the HSR Act,
and the rules and regulations thereunder, and the Bermuda Exchange Control Act
of 1972, no consent, approval, order or authorization of, action by, or in
respect of, or registration, declaration or filing with, any Governmental Entity
is required by or with respect to CoreComm or any of its subsidiaries (including
Sub) in connection with the execution and delivery of this Agreement by each of
CoreComm or Sub or the consummation by CoreComm and Sub of the transactions
contemplated by this Agreement, except for (1) the filing of the Articles of
Merger with the Secretary of State of Illinois and the Secretary of State of
Delaware such filings with Governmental Entities to satisfy the applicable
requirements of state securities or "blue sky" laws; (2) the filing of a
Registration Statement on Form S-4 with the SEC in accordance with the
Securities Act; (3) such filings with and approvals of the NASDAQ to permit the
shares of CoreComm Common Stock that are to be issued in the Merger to be
authorized for quotation on the NASDAQ; and (4) such consents, approvals, orders
or authorizations the failure of which to be made or obtained individually or in
the aggregate would not (x) have a material adverse effect on CoreComm or (y)
reasonably be expected to impair the
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ability of CoreComm to perform its obligations under this Agreement.
(e) SEC Documents; Undisclosed Liabilities. CoreComm has filed all required
registration statements, prospectuses, reports, schedules, forms, statements and
other documents (including exhibits and all other information incorporated
therein) with the SEC since August 31, 1998 (together with CoreComm's Form 10/A
filed on August 31, 1998, the "CoreComm SEC Documents"). As of their respective
dates, the CoreComm SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
CoreComm SEC Documents, and none of the CoreComm SEC Documents when filed
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of CoreComm included in the CoreComm SEC
Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of CoreComm and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except (i) as
reflected in such financial statements or in the notes thereto or (ii) for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, neither CoreComm nor any of its subsidiaries has any
liabilities or obligations of any nature which, individually or in the
aggregate, would have a material adverse effect on CoreComm.
(f) Absence of Certain Changes or Events. Except for liabilities incurred
in connection with this
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Agreement or the transactions contemplated hereby, and except as permitted by
Section 4.1(b), since September 2, 1998, CoreComm and its subsidiaries have
conducted their business only in the ordinary course or as disclosed in any
CoreComm SEC Document filed since such date and prior to the date hereof, and
there has not been (i) any material adverse change in CoreComm, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of CoreComm's capital
stock, (iii) any split, combination or reclassification of any of CoreComm's
capital stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of CoreComm's
capital stock, except for issuances of CoreComm Common Stock upon exercise of
CoreComm Stock Options, in each case, awarded prior to the date hereof in
accordance with their present terms or issued pursuant to Section 4.1(b), (iv)
except insofar as may have been disclosed in CoreComm SEC Documents filed and
publicly available prior to the date of this Agreement or required by a change
in GAAP, any change in accounting methods, principles or practices by CoreComm
materially affecting its assets, liabilities or business, (v) except insofar as
may have been disclosed in the CoreComm Filed SEC Documents, any tax election
that individually or in the aggregate would have a material adverse effect on
CoreComm or any of its tax attributes or any settlement or compromise of any
material income tax liability or (vi) any action taken by CoreComm or any of the
CoreComm subsidiaries during the period from September 2, 1998 through the date
of this Agreement that, if taken during the period from the date of this
Agreement through the Effective Time would constitute a breach of Section
4.1(b).
(g) Brokers. Other than Schneider & Company, which will be paid by
CoreComm, no broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of CoreComm.
(h) Taxes. (1) Prior to the Merger, CoreComm will be in control of Sub
within the meaning of Section
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368(c)(1) of the Code. Following the Merger, CoreComm has no plan or intention
for Sub to issue additional shares of its stock that would result in CoreComm
losing control of Sub within the meaning of Section 368(c)(1) of the Code.
(2) The aggregate fair market value of the Merger Consideration
(including any cash paid for fractional shares) will be approximately equal
to the fair market value of Megsinet stock surrendered therefor. The Merger
Consideration will be the sole consideration received for each such
shareholder's Megsinet Capital Stock, and the Megsinet Capital Stock
surrendered in exchange therefor will be the sole consideration delivered
by such shareholder for the Merger Consideration, and the terms of such
exchange were arrived at through arm's length negotiations.
(3) There is no intercorporate indebtedness existing between CoreComm
or any of its subsidiaries (including Sub) and Megsinet that was issued,
acquired, or will be settled at a discount.
(4) Neither CoreComm nor Sub is an investment company as defined in
Section 368(a)(2)(F) (iii) and (iv) or the Code.
(5) Neither CoreComm nor any related person (within the meaning of
Treasury Regulations Section 1.368-1(e)(3)) has any plan or intention to
redeem or, actually or in substance directly or indirectly, acquire after
the date of the Merger any of the CoreComm Common Stock to be issued in the
Merger. CoreComm has no stock repurchase plan in effect and has no intent
to create such a plan. After the Merger, no dividends or distributions will
be made to the former owners of Megsinet, other than regular, normal
dividends or distributions made to all holders of CoreComm Common Stock.
(6) CoreComm has no plan or intention to liquidate Sub, to merge Sub
with and into any other corporation, to sell or otherwise dispose of the
stock of Sub or to cause Sub to sell or otherwise
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dispose of any assets of Megsinet acquired in the Merger, except for
dispositions made in the ordinary course of business or transfers described
in Section 368(a)(2)(C) of the Code, in which latter case the foregoing
representations shall be deemed to apply to any transferee. Following the
Merger, CoreComm will not take any action that would cause Sub to fail the
Substantially All Test.
(7) Following the Merger, CoreComm will continue the historic business
of Megsinet or use a significant portion of Megsinet's business assets in a
business.
(8) The payment of cash in lieu of fractional shares of CoreComm
Common Stock is solely for the purpose of avoiding the expense and
inconvenience to CoreComm of issuing fractional shares of CoreComm Common
Stock and does not represent separately bargained-for consideration. The
total cash consideration to be paid in the Merger in lieu of fractional
shares of CoreComm Capital Stock will not exceed 1% of the total
consideration in the Merger.
(9) (a) none of the compensation received (or to be received) by any
shareholder of Megsinet will be separate consideration for, or allocable
to, any of his Megsinet Capital Stock; (b) none of the CoreComm Common
Stock received by any shareholder of Megsinet pursuant to the Merger will
be separate consideration for, or allocable to, any employment, services or
noncompetition agreement or arrangement; and (c) the compensation paid to
any shareholder of Megsinet who provides services to Megsinet will be
commensurate with amounts that would be paid to a third party bargaining at
arm's length for similar services.
(10) Except as otherwise specifically set forth herein, Megsinet, Sub,
CoreComm and the shareholders of Megsinet will each pay their respective
expenses, if any, incurred in connection with the Merger and the
transactions related thereto.
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(11) Prior to the Effective Time, CoreComm will be in control of Sub
within the meaning of Section 368(c) of the Code. No Sub capital stock will
be issued in the Merger. At no time prior to the Merger will has, or will
Sub have had, assets (other than nominal assets contributed upon the
formation of Sub, which assets will have been held by Sub following the
Merger) or conducted any business activities or operations.
(12) CoreComm has plan or intention to issue additional Sub stock (or
securities, options, warrants or instruments giving the holder the right to
Sub stock) that would (or if exercised would) result in CoreComm owning
less than an amount of stock constituting control under Section 368(c) of
the Code.
(13) Neither CoreComm nor any of its subsidiaries (including Sub), nor
any entity in which CoreComm owns an equity interest, owns any stock of
Megsinet.
(14) Except as expressly provided herein, neither CoreComm nor any
affiliate of CoreComm has any plan or intention of taking any action prior
to, at or after the Effective Time that is contrary to any of
representations of this Section 3.2(h).
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business. Except as set forth in Section 4.1(a) of
the Megsinet Disclosure Schedule, as otherwise expressly contemplated by this
Agreement or as consented to by CoreComm in writing, such consent not to be
unreasonably withheld or delayed, during the period from the date of this
Agreement to the Effective Time, Megsinet shall, and shall cause its
subsidiaries to, carry on their respective businesses in the ordinary course
consistent with past practice and in compliance in all material respects with
all applicable laws and regulations and, to the extent consistent there-
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with, use all reasonable efforts to preserve intact their current business
organizations, use reasonable efforts to keep available the services of their
current officers and other key employees and preserve their relationships with
those persons having business dealings with them to the end that their goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing (but subject to the above exceptions),
during the period from the date of this Agreement to the Effective Time,
Megsinet shall not, and shall not permit any of its subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly owned subsidiary of Megsinet to its parent, or by a subsidiary that
is partially owned by Megsinet or any of its subsidiaries, provided that
Megsinet or any such subsidiary receives or is to receive its proportionate
share thereof, (x) declare, set aside or pay any dividends on, make any
other distributions in respect of, or enter into any agreement with respect
to the voting of, any of its capital stock, (y) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, except for issuances of Megsinet Common Stock
upon conversion of Megsinet Convertible Securities or upon the exercise of
Megsinet Stock Options, in each case, outstanding as of the date hereof in
accordance with their present terms, or (z) purchase, redeem or otherwise
acquire any shares of capital stock of Megsinet or any of its subsidiaries
or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien any shares of its capital stock, any other voting securities or
any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
(other than (x) the issuance of Megsinet Common Stock upon conversion of
Megsinet Convertible Securities in
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accordance with their present terms at the option of the holders thereof,
and (y) the issuance of Megsinet Common Stock upon the exercise of Megsinet
Stock Options, in each case, outstanding as of the date hereof in
accordance with their present terms);
(iii) amend its articles of organization, by-laws or other comparable
organizational documents;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any person;
(v) acquire or agree to acquire any assets with a value greater than
$20,000;
(vi) take any action to expand the states in which any of its
businesses currently operate, other than pursuant to public announcements
made prior to the date hereof or as may be required under agreements
entered into prior to the date hereof;
(vii) sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its properties or assets
(including securitizations), other than in the ordinary course of business
consistent with past practice;
(viii) take any action that would cause the representations and
warranties set forth in Section 3.1(f) (with each reference therein to
"ordinary course of business" being deemed for purposes of this Section
4.1(a)(vi) to be immediately followed by "consistent with past practice")
to no longer be true and correct;
(ix) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for the obligations of any person for
borrowed money;
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(x) other than for normal merit increases and for payment of any
previously disclosed year-end bonus, increase the benefits or compensation
of, or pay any bonus to, any employee of Megsinet, agree to do any of the
foregoing, or amend or enter into any other agreement or arrangement with
respect to employment or compensation or agreement with respect to
consultants; or
(xi) authorize, or commit or agree to take, any of the foregoing
actions;
provided that the limitations set forth in this Section 4.1(a) (other than
clause (iii)) shall not apply to any transaction between Megsinet and any wholly
owned subsidiary or between any wholly owned subsidiaries of Megsinet.
(b) Other Actions. Except as required by law, Megsinet and CoreComm shall
not, and shall not permit any of their respective subsidiaries to, voluntarily
take any action that would, or that could reasonably be expected to, result in
(i) any of the representations and warranties of such party set forth in this
Agreement that are qualified as to materiality becoming untrue at the Effective
Time, (ii) any of such representations and warranties that are not so qualified
becoming untrue in any material respect at the Effective Time, or (iii) any of
the conditions to the Merger set forth in Article VI not being satisfied.
(c) Advice of Changes. Megsinet and CoreComm shall promptly advise the
other party orally and in writing to the extent it has knowledge of (i) any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply in any
material respect with or satisfy in any material respect any covenant, condition
or agreement to be complied with or satisfied by it under this Agreement and
(iii) any change or event having, or which, insofar as can reasonably be
foreseen, could reasonably be expected to have a material adverse effect on such
party or on the truth of their respective representations
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and warranties or the ability of the conditions set forth in Article VI to be
satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties (or remedies
with respect thereto) or the conditions to the obligations of the parties under
this Agreement.
SECTION 4.2 No Solicitation by Megsinet. (a) Megsinet shall not, nor shall
it permit any of its subsidiaries to, nor shall it authorize or permit any of
its directors, officers or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
its subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed to facilitate, any inquiries or the making of any proposal
which constitutes any Megsinet Takeover Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding any Megsinet Takeover
Proposal. For purposes of this Agreement, "Megsinet Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of a business that constitutes 10% or more of the net
revenues, net income or the assets of Megsinet and its subsidiaries, taken as a
whole, or 10% or any equity securities of Megsinet, any tender offer or exchange
offer that if consummated would result in any person beneficially owning any
equity securities of Megsinet, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Megsinet (or any Megsinet subsidiary whose business constitutes 10% or
more of the net revenues, net income or the assets of Megsinet and its
subsidiaries, taken as whole) or the Megsinet Common Stock, other than the
transactions contemplated by this Agreement.
(b) Neither the Board of Directors of Megsinet nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to CoreComm, the approval or recommendation by such Board of Directors
or such committee of the Merger or this Agreement, (ii) approve or recommend, or
propose publicly to approve or recommend, any Megsinet Takeover
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Proposal, or (iii) cause Megsinet to enter into any letter of intent, agreement
in principle, acquisition agreement or other similar agreement (each, an
"Megsinet Acquisition Agreement") related to any Megsinet Takeover Proposal.
Notwithstanding the foregoing, nothing shall prohibit Megsinet from entering
into an agreement for the sale of the Pequot Preferred to Pequot Private Equity
Fund, L.P. and Pequot Offshore Private Equity Fund, Inc. (collectively "Pequot"
and any such agreement a "Pequot Transaction") provided such agreement complies
with the requirements of Section 5.16.
(c) In addition to the obligations of Megsinet set forth in paragraphs (a)
and (b) of this Section 4.2, Megsinet shall immediately advise CoreComm orally
and in writing of any request for information or of any Megsinet Takeover
Proposal, the material terms and conditions of such request or Megsinet Takeover
Proposal and the identity of the person making such request or Megsinet Takeover
Proposal. Megsinet will keep CoreComm reasonably informed of the status and
details (including amendments or proposed amendments) of any such request or
Megsinet Takeover Proposal.
SECTION 4.3 Cooperation. CoreComm shall have the right to have its
designated representatives, as provided to Megsinet from time to time, (the
"Designated Purchaser Representatives") present within normal business hours and
without material disruption to the business of Megsinet for consultation at
Megsinet's principal offices from the date hereof until the Closing Date. Such
Designated Purchaser Representatives shall have the right to review and become
familiar with the conduct of the business of Megsinet and shall be available to
be consulted and shall have authority on behalf of CoreComm in regard to
consultation in regard to Material Decisions (as defined below in this Section
4.3). CoreComm shall take all reasonable actions necessary to ensure that its
Designated Purchaser Representatives will be readily available during normal
business hours. Without notice to and consultation with the Designated Purchaser
Representatives, Megsinet shall not take any action involving any Material
Decision. "Material Decision" shall mean, for purposes of this Agreement, any of
the following to the extent the same may affect the assets, the obliga-
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tions or the business of Megsinet following the date hereof: (i) any entering
into, termination or material amendment of, or waiver of any Megsinet's rights
in respect of, any Megsinet Material Contracts; (ii) any purchase order in
excess of $20,000 in any instance to be delivered, or the payment for which
shall become due, after the Closing Date; (iii) the acceptance of any material
customer contract that deviates from the terms and conditions of current pricing
policies; (iv) any action to respond to any material customer or regulatory
complaint outside of the ordinary course of business; (v) any general
communication with customers related to the business or to the Merger; or (vi) a
material change in pricing, promotional, marketing or any other decision that
would affect any Megsinet's customary profit margins.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Megsinet Stockholders Meeting.
(i) Megsinet shall as promptly as practicable duly call, give notice
of, convene and hold a meeting of its stockholders (the "Megsinet
Stockholders Meeting") in accordance with the IBCA, and applicable federal
securities laws, for the purpose of obtaining the Megsinet Stockholder
Approval and shall, through its Board of Directors, recommend to its
stockholders the approval and adoption of this Agreement, the Merger and
the other transactions contemplated hereby. At the Megsinet Stockholders
Meeting, Megsinet shall recommend to its stockholders the approval and
adoption of an amendment to Megsinet's Articles of Incorporation providing
for the Reduced Vote. Such amendment shall be presented and entered into in
such a manner so as to be effective prior to obtaining the Megsinet
Stockholders Approval. Without limiting the generality of the foregoing,
Megsinet agrees that its obligations pursuant to the first sentence of this
Section 5.1 shall not be affected by the commencement, proposal, disclosure
or communication to Megsinet of any Megsinet Takeover Proposal.
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(ii) If necessary to satisfy the representation supplied in Section
3.1(j)(iv), a stockholder vote satisfying the requirements of Section
280G(b)(5)(B) of the Code and Prop. Treas. Reg. Section 1.280G-1(Q&A-7)
shall be conducted.
SECTION 5.2 Access to Information; Confidentiality. (a) Subject to the
provisions of Section 5.2(b) (the "Confidentiality Agreement"), and subject to
restrictions contained in confidentiality agreements to which such party is
subject (which such party will use its best efforts to have waived) and
applicable law, each of Megsinet and CoreComm shall, and shall cause each of its
respective subsidiaries to, afford to the other party and to the officers,
employees, accountants, counsel, financial advisors and other representatives of
such other party, reasonable access during normal business hours during the
period prior to the Effective Time to all their respective properties, books,
contracts, commitments, personnel and records and, during such period, each of
Megsinet and CoreComm shall, and shall cause each of its respective subsidiaries
to, furnish promptly to the other party (a) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (b) all
other information concerning its business, properties and personnel as such
other party may reasonably request. No review pursuant to this Section 5.2 shall
affect any representation or warranty given by the other party hereto. Each of
Megsinet and CoreComm will hold, and will cause its respective officers,
employees, accountants, counsel, financial advisors and other representatives
and affiliates to hold, any nonpublic information in accordance with the terms
of the Confidentiality Agreement.
(b) Each of Megsinet and CoreComm shall, and shall cause each of its
respective subsidiaries to, agree not to use one another's Evaluation Material
for any purpose other than in connection with this Agreement and the provisions
herein. Except as may otherwise be re quired under applicable law, the
Evaluation Material of each party shall remain confidential and shall not be
disclosed to any other party other than such party's representatives for the
purpose of fulfilling the provi-
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sions contained in this agreement. Each party shall use its best efforts to
ensure that it is not obligated to disclose any of the other party's Evaluation
Material for any purpose.
"Evaluation Material" shall mean, with respect to each party, any
information which is non-public, confidential or proprietary in nature and which
has been made available to the other party (or any of its subsidiaries) in
connection with the signing of this Agreement and the transactions contemplated
hereby.
SECTION 5.3 Best Efforts. (a) Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties agrees to use best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of all
necessary registrations and filings and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
by this Agreement, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed, and
(iv) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the purposes
of, this Agreement.
(b) In connection with and without limiting the foregoing, Megsinet and
CoreComm shall (i) take all action necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to the Merger,
this Agreement, or any of the other transactions contemplated by this Agreement
and (ii) if any
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state takeover statute or similar statute or regulation becomes applicable to
the Merger, this Agreement, or any other transaction contemplated by this
Agreement, take all action necessary to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger and the other
transactions contemplated by this Agreement.
SECTION 5.4 Stock Options. (a) As soon as practicable following the date of
this Agreement, the Board of Directors of Megsinet (or, if appropriate, a
committee of the Megsinet Board of Directors) shall adopt such resolutions or
take such other actions as may be required to effect the following:
(i) adjust the terms of all outstanding Megsinet Stock Options,
whether vested or unvested, as necessary to provide that, at the Effective
Time, each Megsinet Stock Option outstanding immediately prior to the
Effective Time shall be adjusted and thereafter represent an option to
acquire, on the same terms and conditions as were applicable under such
Megsinet Stock Option, the same number of shares of CoreComm Common Stock
as the holder of such Megsinet Stock Option would have been entitled to
receive pursuant to the Merger had such holder exercised such Megsinet
Stock Option in full immediately prior to the Effective Time, with any
fractional shares of CoreComm Common Stock resulting from such calculation
being rounded down to the nearest whole share, at a price per share of
CoreComm Common Stock equal to (A) the aggregate exercise price for the
shares of Megsinet Common Stock otherwise purchasable pursuant to such
Megsinet Employee Stock Option divided by (B) the aggregate number of
shares of CoreComm Common Stock deemed purchasable pursuant to such
Megsinet Employee Stock Option, rounding the exercise price thus determined
down to the nearest whole cent (each, as so adjusted, an "Adjusted
Option"); and
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(ii) take such other actions relating to the Megsinet Stock Plan as
Megsinet and CoreComm may agree are appropriate to give effect to the
Merger, including as provided in Section 5.7.
(b) As soon as practicable after the Effective Time, CoreComm shall deliver
to the holders of Megsinet Employee Stock Options appropriate notices setting
forth such holders' rights pursuant to the Megsinet Stock Plan and the
agreements evidencing the grants of such Megsinet Stock Options and that such
Megsinet Stock Options and agreements shall be assumed by CoreComm and shall
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section 5.6 after giving effect to the Merger).
(c) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by delivering a properly executed
notice of exercise to CoreComm, together with the consideration therefor and the
federal withholding tax information, if any, required in accordance with the
Megsinet Stock Plan.
(d) Except as otherwise contemplated by this Section 5.5 and
notwithstanding any terms of the Megsinet Stock Options to the contrary, all
restrictions or limitations on transfer and vesting with respect to Megsinet
Stock Options awarded under the Megsinet Stock Plan or any other plan, program
or arrangement of Megsinet or any of its subsidiaries, to the extent that such
restrictions or limitations shall not have already lapsed, shall remain in full
force and effect with respect to such options after giving effect to the Merger
and the assumption by CoreComm as set forth above. Prior to the Effective Time,
Megsinet shall obtain, in a form reasonably acceptable to CoreComm, the consent
of each holder of a Megsinet Stock Option to the treatment set forth in this
Section 5.4, including, without limitation, a waiver by each such optionee of
any provision of any Megsinet Stock Option or any related agreement (including
any employment agreement) which would otherwise result in any lapse of
restrictions or acceleration of vesting or exercisability upon the signing of
this Agreement, the consummation of
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the transactions contemplated hereby, or any other related event.
SECTION 5.5 Megsinet Stock Plan and Certain Employee Matters. (a) At the
Effective Time, by virtue of the Merger, each outstanding and unexercised
Megsinet Stock Option shall be assumed by CoreComm, with the result that all
obligations of Megsinet under such Megsinet Stock Options shall be obligations
of CoreComm following the Effective Time. Prior to the Effective Time, CoreComm
shall take all necessary actions (including, if required to comply with Section
162(m) or 422 of the Code (and the regulations thereunder) or applicable law or
rule of the NASDAQ, obtaining the approval of its stockholders at the next
regularly scheduled CoreComm stockholders meeting) for the assumption of the
Megsinet Stock Plan, including the reservation, issuance and authorization of
CoreComm Common Stock in a number at least equal to (x) the number of shares of
CoreComm Common Stock that will be subject to Adjusted Options and (y) the
product of the Exchange Ratio and the number of shares of Megsinet Common Stock
available for future awards under the Megsinet Stock Plan immediately prior to
the Effective Time. If necessary, CoreComm shall prepare and file with the SEC a
registration statement on Form S-8 (or another appropriate form) registering a
number of shares of CoreComm Common Stock determined in accordance with the
preceding sentence. A valid registration statement shall be kept effective at
least for so long as Adjusted Options remain outstanding and until such time as
the shares of CoreComm Common Stock subject to such Adjusted Options are no
longer subject to resale restrictions under the Securities Act.
(b) Following the Effective Time, CoreComm will honor all obligations of
Megsinet or its subsidiaries under the employment agreements in effect as of the
effective date of each such agreement, between Megsinet and each of Michael
Henry, Brian Clark and Scott Widham (the "Retained Executives"). However, the
titles and duties of these individuals may vary from those set forth in each of
their respective agreements, and Megsinet shall, prior to the Effective Time,
obtain agreements from the Retained Executives that such changes will not
constitute "Good Reason" as defined in the applicable
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employment agreements. In addition, as soon as practicable after the date hereof
but at least 14 business days prior to the Closing Date, the Significant
Stockholders and CoreComm will agree to an amendment to each Significant
Stockholder's employment agreement providing for, customary "non-compete"
provisions and customary "no solicitation" provisions, each with a duration of 5
years. CoreComm and each of the Significant Stockholders shall negotiate the
precise terms of such amendments in good faith, subject to the above general
provisions. Other than as specified in this Section 5.5(b), CoreComm does not
intend to seek material amendments to the Retained Executive's employment
agreements.
SECTION 5.6 Fees and Expenses. Except as provided for in Section 3.1(p),
all fees and expenses incurred in connection with the Merger, this Agreement,
and the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
SECTION 5.7 Public Announcements. CoreComm shall issue a press release
regarding this Agreement and the transactions contemplated hereby at such time
as CoreComm deems appropriate and in order to comply with applicable law.
Megsinet agrees not to make any public announcement regarding this Agreement or
the transactions contemplated hereby without prior consent from CoreComm.
SECTION 5.8 NASDAQ Quotation. CoreComm shall use best efforts to cause the
CoreComm Common Stock issuable under Article II and upon exercise of Adjusted
Options pursuant to Section 5.6 to be approved for quotation on the NASDAQ,
subject to official notice of issuance, within 12 months from the Effective
Time.
SECTION 5.9 Conveyance Taxes. CoreComm and Megsinet shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees or any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be
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filed on or before the Effective Time. CoreComm and Megsinet shall each pay
their own such taxes and fees.
SECTION 5.10 Proxy/Prospectus; Registration Statement.
(a) As promptly as practical after the execution of this Agreement,
Megsinet and CoreComm shall prepare and CoreComm shall file with the SEC the
Registration Statement and the Proxy/Prospectus to be included therein as a
prospectus. Megsinet and CoreComm shall use all reasonable efforts to cause the
Registration Statement to become effective as soon after such filing as
practicable. The Proxy/Prospectus shall include the recommendation of the Board
of Directors of Megsinet in favor of the Agreement. Megsinet shall furnish
CoreComm with all information concerning Megsinet and the holders of its capital
stock and shall take such other action as CoreComm may reasonably request in
connection with the Registration Statement and the issuance of the shares of
CoreComm Common Stock. If at any time prior to the Effective Time any event or
circumstance relating to Megsinet, CoreComm or any of their respective
Subsidiaries, affiliates, officers or directors should be discovered by such
party which should be set forth in an amendment or a supplement to the
Registration Statement or Proxy/Prospectus, such party shall promptly inform the
other thereof and take appropriate action in respect thereof. Megsinet shall
make available to CoreComm as soon as practicable after the date hereof audited
financial statements for Megsinet for 1998, and, if necessary, for 1997, each
for inclusion in the Registration Statement and each in conformity with SEC
rules and regulations.
(b) Megsinet and CoreComm shall make any necessary filings with respect to
the Merger under the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the rules and regulations thereunder and
CoreComm shall use its reasonable best efforts to take any action required to be
taken under state securities or "blue sky" laws in connection with the issuance
of the shares of CoreComm Common Stock in accordance with the provisions of this
Agreement.
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SECTION 5.11 Ascend Warrant. Prior to the Effective Time, Megsinet will
amend the terms of the outstanding warrant issued to Ascend Communications, Inc.
(the "Ascend Warrant") such that Ascend will receive, upon the consummation of
the Merger, in exchange for its existing warrant, a warrant to purchase shares
of CoreComm Common Stock in which the exercise price and number of shares shall
be equitably determined to reflect the original terms of the Ascend Warrant. The
form of the amendment to the Ascend Warrant to be presented to Ascend by
Megsinet is attached hereto in Annex A.
SECTION 5.12 Pequot Warrant. Prior to the Effective Time, Megsinet will
ensure that or amend the terms of any warrant issued to Pequot (the "Pequot
Warrant"), such that (i) the Pequot Warrant shall be cancelled on or before the
Effective Time; (ii) Pequot will receive in exchange for such cancellation
35,000 shares of CoreComm Common Stock to be delivered to Pequot directly by
CoreComm which shares shall not be included in the Allocation Schedule or be
deemed part of the Stock Payment; and (iii)Pequot shall sign the Stockholders
Agreement contemplated by Section 5.17. The shares of CoreComm Common Stock to
be issued to Pequot pursuant to this section shall be included in the
Registration Statement and shall be issued only after the Registration Statement
has been declared effective.
SECTION 5.13 Allocation Schedule. As soon as practicable, Megsinet shall
deliver to CoreComm and to the Exchange Agent the Allocation Schedule. Megsinet
will take sole responsibility for producing such schedule. Other than for
dissenting shares, shares issued pursuant to Section 5.13, and fractional shares
or cash in lieu of fractional shares, the amount of Cash Consideration allocated
to Megsinet shareholders on the Allocation Schedule shall be equal to the Cash
Payment (as defined in Section 2.2(a)) and the Stock Consideration allocated to
Megsinet shareholders on the Allocation Schedule shall be equal to the Stock
Payment (as defined in Section 2.2(a)).
SECTION 5.14 Cisco Loan. CoreComm will, on or before the Effective time use
its best efforts to cause the release of the security interest held by Cisco in
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Megsinet Common Stock owned by Michael Henry, on terms acceptable to Cisco.
SECTION 5.15 Cisco and Ascend Credit Facilities. As soon as practicable
after the date hereof, but in no event later than seven days prior to the
Closing Date, Megsinet and the Significant Stockholders shall take all actions
necessary to amend each of (i) the letter agreement from Cisco Systems Capital
Corporation, dated as of September 29, 1998, and (ii) the Secured Promissory
Note issued to Ascend Communications, Inc., dated as of August 27, 1998, such
that each covenant (either affirmative or negative) set forth in such agreements
is satisfactory to CoreComm in its good faith business judgment. Forms of such
amendments are attached hereto in Annex A.
SECTION 5.16 Pequot Agreement. Megsinet will amend the terms of any and all
outstanding agreements and other instruments between Megsinet and Pequot,
including, but not limited to, the Pequot Preferred and the Pequot Warrants, or
ensure that in any agreement to be entered into, Pequot will not have any rights
superior or in addition to the other holders of Megsinet Common Stock, and all
covenants, representations, warranties, indemnifications and all other
provisions that survive the closing of the Pequot Transaction shall be
terminated and not survive the closing of the Merger. In no event will the
number of shares of Megsinet Common Stock into which the Pequot Preferred can
convert exceed 2 million.
SECTION 5.17 Stockholders Agreement. Prior to the closing, Megsinet shall
obtain the signatures of each holder of Megsinet Capital Stock that will receive
shares of CoreComm Common Stock pursuant to this Agreement, on a stockholders
agreement (the "Stockholders Agreement") providing that each such stockholder
shall not sell, transfer or otherwise dispose of any such shares of CoreComm
Common Stock for a period of 12 months from the Effective Time.
SECTION 5.18 NASDAQ Listing. CoreComm shall use its reasonable best efforts
to have authorized for listing on the NASDAQ National Market, upon official
notice of issuance, the shares of CoreComm Common Stock
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to be issued pursuant to Article II or Adjusted Options, within 12 months from
the Effective Time.
SECTION 5.19 GMV Network LLC. As soon as practicable following the date
hereof, but in no event later than seven days prior to the Closing Date, each of
Megsinet and the Significant Stockholders shall divest any interest he or it
owns, whether directly or indirectly, in GMV Network, LLC.
SECTION 5.20 Interested Contracts. As soon as practicable following the
date hereof, but in no event later than seven days prior to the Closing Date,
Megsinet and the Significant Stockholders shall take all actions necessary to
amend the terms of any agreement or other instrument between Megsinet and
Capital Internet, L.L.C. or any other entity controlled by any Megsinet officer
or director or shareholder (including such persons) such that the terms of any
such agreements or instruments are revised, to the satisfaction of CoreComm, to
eliminate any conflict of interest or preferential treatment that might create a
conflict of interest.
SECTION 5.21 Personal Loans. As soon as practicable following the date
hereof, but in no event later than seven days prior to the Closing Date,
Megsinet and the Significant Stockholders shall take all actions necessary to,
and shall obtain full repayment of, any personal loans made by Megsinet to any
individuals, including, but not limited to, the parents of Michael Henry.
SECTION 5.22 Michael S. Nelson. Megsinet shall have, on or before the
Closing Date, taken all steps to resolve in its favor any claim, whether
threatened or pending, brought by Michael S. Nelson. The Significant
Stockholders agree that they will indemnify CoreComm for any breach of this
Section 5.22 or any claim brought by Michael S. Nelson regarding Megsinet Common
Stock pursuant to the terms of Article VIII herein and that for purposes of this
Section 5.22 and any claim brought by Michael Nelson, the Minimum, as otherwise
defined in Article VIII, shall be $100,000.
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SECTION 5.23 Ameritech Interconnection. Megsinet shall use its best efforts
to (i) maintain the Interconnection Agreement, dated as of October 28, 1996,
between Megsinet and Ameritech Information Industry Services (the "Ameritech
Agreement") on terms and conditions no less favorable than those in the
Ameritech Agreement as it exists on the date hereof; and (ii) obtain actual
physical interconnection as promptly as practicable with the facilities of
Ameritech Corporation in its Chicago, Illinois facilities under the terms of the
Ameritech Agreement or otherwise.
SECTION 5.24 Alternative Financing. In the event that the Pequot
Transaction does not occur, CoreComm will, at its sole election, provide a loan
to Megsinet in exchange for a Convertible Promissory Note, in a form mutually
agreed upon by the parties, which will provide for, among other things, the
right of CoreComm to convert such note into at least 4.5 million shares of
Megsinet Common Stock for total consideration consistent with this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Megsinet Stockholder Approval. The Megsinet Stockholder Approval shall
have been obtained, and no stockholder of Megsinet shall have demanded appraisal
under the IBCA.
(b) HSR Act. The HSR Act shall not be applicable to the Merger or, if
applicable, any waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired.
(c) Governmental and Regulatory Approvals. Other than the filing provided
for under Section 1.3 and
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filings pursuant to the HSR Act (which are addressed in Section 6.1(b)), all
consents, approvals and actions of, filings with and notices to any Governmental
Entity required of Megsinet, CoreComm or any of their subsidiaries to consummate
the Merger and the other transactions contemplated hereby, the failure of which
to be obtained or taken (i) is reasonably expected to have a material adverse
effect on the Surviving Corporation and its prospective subsidiaries, taken as a
whole, or (ii) will result in a violation of any laws, shall have been obtained,
all in form and substance reasonably satisfactory to Megsinet and CoreComm.
(d) No Injunctions or Restraints. No judgment, order, decree, statute, law,
ordinance, rule or regulation, entered, enacted, promulgated, enforced or issued
by any court or other Governmental Entity of competent jurisdiction or other
legal restraint or prohibition (collectively, "Restraints") shall be in effect
(i) preventing the consummation of the Merger, or (ii) which otherwise is
reasonably likely to have a material adverse effect on Megsinet or CoreComm, as
applicable; provided, however, that each of the parties shall have used its best
efforts to prevent the entry of any such Restraints and to appeal as promptly as
possible any such Restraints that may be entered.
(e) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
SECTION 6.2 Conditions to Obligations of CoreComm and Sub. The obligations
of CoreComm and Sub to effect the Merger are further subject to satisfaction or
waiver of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Megsinet set forth herein shall be true and correct both when made and at and as
of the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limita-
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tion as to "materiality" or "material adverse effect" set forth therein) does
not have, and is not likely to have, individually or in the aggregate, a
material adverse effect on Megsinet.
(b) Performance of Obligations of Megsinet. Megsinet shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date.
(c) No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any material adverse change relating to
Megsinet.
(d) Megsinet Stock Options. As of the Effective Time, the Megsinet Employee
Stock Options shall have been amended pursuant to Section 5.4(a).
(e) Megsinet Warrants. As of the Effective Time, the terms of the Ascend
Warrant and the Pequot Warrants shall have been amended pursuant to Section 5.12
and 5.13 respectively.
(f) Tax Opinion. CoreComm shall have received an opinion of Skadden, Arps,
Slate, Meagher & Flom Illinois, special tax counsel to CoreComm, in form and
substance reasonably satisfactory to CoreComm, dated as of the Effective Time,
substantially to the effect that, on the basis of certain facts, representations
and assumptions set forth in such opinion, which are consistent with the state
of facts existing at the Effective Time, (A) the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, and (B) CoreComm, Sub, and Megsinet will each be a party to
that reorganization within the meaning of Section 368(b) of the Code. In
rendering the opinion described in the preceding sentence, such counsel may
require and rely upon representations contained in certificates or other
writings delivered by CoreComm, Sub, Megsinet, or shareholders of Megsinet.
(g) Megsinet Opinion. CoreComm shall have received an opinion from Amy
Gross, Esq. in form and
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substance reasonably satisfactory to CoreComm, dated as of the Effective Time,
substantially to the effect that, on the basis of certain facts, representations
and assumptions set forth in such opinion, which are consistent with the state
of facts existing at the Effective Time, that: (i) Megsinet and its subsidiaries
have all necessary Megsinet Permits (as defined in Section 3.1(g), and (ii) that
the execution and the delivery of this Agreement by Megsinet, and the
consummation of the transactions contemplated herein will not conflict with or
result in any violation of any judgement order, decree, statute, law, ordinance,
rule or regulation applicable to Megsinet or any of its subsidiaries or their
respective properties or assets, other than any such conflicts or violations
that individually or in the aggregate would not (x) have a material adverse
effect on Megsinet or (y) reasonably be expected to impair the ability of
Megsinet to perform its obligations under this Agreement.
(h) Stockholders Agreement. Each holder of Megsinet Capital Stock that will
receive shares of CoreComm Common Stock pursuant to this Agreement shall have
signed the Stockholders Agreement prior to the Effective Time.
SECTION 6.3 Conditions to Obligations of Megsinet. The obligation of
Megsinet to effect the Merger is further subject to satisfaction or waiver of
the following conditions:
(a) Representations and Warranties. The representations and warranties of
CoreComm set forth herein shall be true and correct both when made and at and as
of the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality," or
"material adverse effect" set forth therein) does not have, and is not likely to
have, individually or in the aggregate, a material adverse effect on CoreComm.
(b) Performance of Obligations of CoreComm. CoreComm shall have performed
in all material respects
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all obligations required to be performed by it under this Agreement at or prior
to the Closing Date.
(c) No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any material adverse change relating to
CoreComm.
SECTION 6.4 Frustration of Closing Conditions. Neither CoreComm nor
Megsinet may rely on the failure of any condition set forth in Section 6.1, 6.2
or 6.3, as the case may be, to be satisfied if such failure was caused by such
party's failure to use best efforts to consummate the Merger and the other
transactions contemplated by this Agreement, as required by and subject to
Section 5.3.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after the Megsinet Stockholder
Approval:
(a) by mutual written consent of CoreComm and Megsinet;
(b) by either CoreComm or Megsinet:
(i) if the Merger shall not have been consummated by June 15, 1999,
provided, however, that the right to terminate this Agreement pursuant to
this Section 7.1(b)(i) shall not be available to any party whose failure to
perform any of its obligations under this Agreement results in the failure
of the Merger to be consummated by such time; provided, however, that this
Agreement may be extended not more than 30 days by either party by written
notice to the other party if the Merger shall not have been consummated as
a direct result of CoreComm or Megsinet having failed to receive all
regulatory approvals required to be obtained with respect to
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the Merger (an "Extension"). Notwithstanding anything to the contrary
herein, CoreComm may extend this Agreement for up to three months following
June 15, 1999 or any existing Extension.
(ii) if the Megsinet Stockholder Approval shall not have been obtained
at a Megsinet Stockholders Meeting duly convened therefor or at any
adjournment or postponement thereof;
(iii) if any Restraint having any of the effects set forth in Section
6.1(d) shall be in effect and shall have become final and nonappealable;
provided, that the party seeking to terminate this Agreement pursuant to
this Section 7.1(b)(iii) shall have used best efforts to prevent the entry
of and to remove such Restraint;
(c) by CoreComm, if Megsinet shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform (A)
would give rise to the failure of a condition set forth in Section 6.2(a) or
(b), and (B) is incapable of being cured by Megsinet or is not cured within 45
days of written notice thereof.
(d) by Megsinet, if CoreComm shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform (A)
would give rise to the failure of a condition set forth in Section 6.3(a) or
(b), and (B) is incapable of being cured by CoreComm or is not cured within 45
days of written notice thereof.
SECTION 7.2 Effect of Termination. In the event of termination of this
Agreement by either Megsinet or CoreComm as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of CoreComm or Megsinet, other than the provisions of
Section 3.1(n), Section 3.2(g), the last sentence of Section 5.2, Section 5.7,
this Section 7.2 and Article VIII, which provisions survive such termination,
and except to the extent that
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such termination results from the willful and material breach by a party of any
of its representations, warranties, covenants or agreements set forth in this
Agreement. If this Agreement is terminated by CoreComm pursuant to Section
7.1(b)(ii), Megsinet shall pay to CoreComm a termination fee of $1.5 million,
within two business days from the date of such termination.
SECTION 7.3 Amendment. This Agreement may be amended by the parties at any
time before or after the Megsinet Stockholder Approval provided, however, that
after any such approval, there shall not be made any amendment that by law
requires further approval by the stockholders of Megsinet without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.3, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
SECTION 7.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require, in the case of CoreComm or
Megsinet, action by its Board of Directors or, with respect to any amendment to
this Agreement, the duly authorized committee of its Board of Directors to the
extent permitted by law.
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ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Survival and Indemnification.
(a) Survival
(i) The representations and warranties of Megsinet and the Significant
Stockholders contained in this Agreement shall survive the Closing for a
period of one year and shall terminate and be of no further force or effect
as of the date one year after the Effective Time.
(ii) The respective covenants and agreements of Megsinet and the
Significant Stockholders contained in this Agreement shall survive the
Closing and shall be fully effective and enforceable for the periods
therein indicated or where not indicated, forever.
(iii) CoreComm shall not be entitled to any indemnification under
Section 8.1(b), with respect to any breach of a representation or warranty,
covenant or agreement after the termination thereof pursuant to Sections
8.1(a) (i) or (ii), except for claims previously asserted pursuant to
Section 8.1(c).
(b) Indemnification by the Significant Stockholders.
(i) The Significant Stockholders shall, jointly and severally,
indemnify CoreComm and its affiliates and their respective officers,
directors, employees and agents against and hold them harmless from any
loss, liability, damage, demand, claim, cost, suit, action or cause of
action, judgment, award, assessment, interest, penalty or expense
(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' and consultants' fees) (any of the foregoing being
hereinafter referred to individually as a "Loss" and
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collectively, as "Losses") suffered or incurred by CoreComm for or on
account of or arising from or in connection with (i) any breach of any
representation or warranty of Megsinet contained in this Agreement or (ii)
any breach of any covenant or agreement of Megsinet contained in this
Agreement.
(ii) No indemnification for any Loss shall be made by the Significant
Stockholders pursuant to Section 8.1(b)(i) until the aggregate amount of
all Losses suffered or incurred by CoreComm or any of its affiliates or
their respective officers, directors, employees or agents first exceeds
$350,000 (the "Minimum"), in which event the Significant Stockholders shall
be liable for the aggregate amount of such Losses, which amount shall not
include the Minimum; provided, however, that the Maximum amount for which
any individual Significant Stockholder shall be liable shall be the amount
of Merger Consideration received by each such Significant Stockholder
pursuant to Article II, including any cash in lieu of fractional shares.
Such limitation shall not effect the joint and several nature of this
indemnification and shall be applied individually, not jointly.
(iii) Signing of this Agreement by the Significant Stockholders shall
constitute such stockholders' express assumption of their respective
obligations pursuant to this Article VIII.
(c) Procedures Relating to Indemnification.
(i) CoreComm shall give prompt written notice to the Significant
Stockholders (the "Indemnifying Party") of any Loss in respect of which
such Indemnifying Party has a duty to indemnify CoreComm under Section
8.1(b) (a "Claim"), specifying in reasonable detail the nature of the Loss
for which indemnification is sought, the section or sections of this
Agreement to which the Claim relates and the amount of the Loss involved
(or, if not then determinable, a reasonable good faith estimate of the
amount of the Loss involved), except that any delay
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or failure so to notify the Indemnifying Party shall only relieve the
Indemnifying Party of its obligations hereunder to the extent, if at all,
that it is prejudiced by reason of such delay or failure.
(ii) If a Claim results from any claim, suit, action or cause of
action brought or asserted by a third party (a "Third Party Claim"), the
Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to CoreComm and the payment
of all expenses. CoreComm shall have the right to employ separate counsel
in such Third Party Claim and participate in such defense thereof, but the
fees and expenses of such counsel shall be at the expense of CoreComm. If
the Indemnifying Party fails to assume the defense of any Third Party Claim
within 10 days after notice thereof, CoreComm shall have the right to
undertake the defense, compromise or settlement of such Third Party Claim
for the account of the Indemnifying Party, subject to the right of the
Indemnifying Party to assume the defense of such Third Party Claim with
counsel reasonably satisfactory to CoreComm at any time prior to the
compromise, settlement or final determination thereof Anything in this
Section 8.1(c) to the contrary notwithstanding, the Indemnifying Party
shall not, without CoreComm's prior written consent, settle or compromise
any Third Party Claim or consent to the entry of any judgment with respect
to any Third Party Claim which would have an adverse effect on CoreComm.
The Indemnifying Party may, without CoreComm's prior written consent,
compromise or settle any such Third Party Claim or consent to entry of any
judgment with respect to any Third Party Claim which requires solely money
damages paid by the Indemnifying Party, and which includes as an
unconditional term thereof the release by the claimant or the plaintiff of
CoreComm from all liability in respect of such Third Party Claim.
(iii) With respect to any Claim other than a Third Party Claim, the
Indemnifying Party shall have ten days from receipt of notice from
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CoreComm of such Claim within which to respond thereto. If the Indemnifying
Party does not respond within such ten-day period, the Indemnifying Party
shall be deemed to have accepted responsibility to make payment and shall
have no further right to contest the validity of such Claim. If the
Indemnifying Party notifies CoreComm within such ten-day period that it
rejects such Claim in whole or in part, CoreComm shall be free to pursue
such remedies as may be available to CoreComm under applicable law.
SECTION 8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to CoreComm or Sub, to:
CoreComm Limited
110 East 59th Street
New York, New York 10022
Facsimile No. (212) 752-1157
Attention: Jeffrey G. Wyman, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Facsimile No.: (212) 735-2000
Attention: Thomas H. Kennedy, Esq.
(b) if to Megsinet, to
Megsinet, Inc.
225 West Ohio Street Suite 200
Chicago, Illinois 60610
Attention: Michael Henry
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with a copy to:
Gallop, Johnson & Neuman L.C.
Interco Corporate Tower
101 South Hanley
St. Louis, Missouri 63105
Attention: Douglas J. Bates, Esq.
SECTION 8.3 Definitions. For purposes of this Agreement:
(a) except for purposes of Section 5.11, an "affiliate" of any person means
another person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such first person,
where "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management policies of a person, whether
through the ownership of voting securities, by contract, as trustee or executor,
or otherwise;
(b) "material adverse change" or "material adverse effect" means, when used
in connection with Megsinet or CoreComm, any change, effect, event, occurrence
or state of facts that is, or would reasonably be expected to be, materially
adverse to the business, financial condition or results of operations of such
party and its subsidiaries taken as a whole; and the terms "material" and
"materially" have correlative meanings;
(c) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity inter-
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ests of which) is owned directly or indirectly by such first person; and
(e) "knowledge" of any person which is not an individual means the
knowledge of such person's executive officers or senior management of such
person's operating divisions and segments, in each case after reasonable
inquiry.
(f) The "Significant Stockholders" are Michael Henry, Brian L. Clark and
Scott R. Widham and have signed this Agreement.
SECTION 8.4 Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference shall be to an Article or Section
of, or an Exhibit to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
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SECTION 8.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement and (b) except for the
provisions of Article II, Section 5.6 and Section 5.8, are not intended to
confer upon any person other than the parties any rights or remedies.
SECTION 8.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 8.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.9 Consent to Jurisdiction. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of New York or any New York state court, in either case in
the County of New York, in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement, (b) agrees that it will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court,
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and (c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than a
federal court sitting in the State of New York or a New York state court, in
either case in the County of New York.
SECTION 8.10 Headings. The 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 8.11 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an accept able manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
69
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IN WITNESS WHEREOF, CoreComm, Sub and Megsinet have caused this Agreement
to be signed by their respec tive officers thereunto duly authorized, all as of
the date first written above.
CORECOMM LIMITED
By: /s/ J. Barclay Knapp
--------------------------------------
Title: Chief Executive Officer
CORECOMM ACQUISITION SUB, INC.
By: /s/ J. Barclay Knapp
--------------------------------------
Title: Chief Executive Officer
MEGSINET INC.
By: /s/ Michael Henry
--------------------------------------
Title: Chief Executive Officer
Michael Henry
/s/ Michael Henry
-----------------------------------------
Brian L. Clark
/s/ Brian L. Clark
-----------------------------------------
Scott R. Widham
/s/ Scott R. Widham
-----------------------------------------
70
EXHIBIT 99.2
FOR IMMEDIATE RELEASE
CORECOMM LAUNCHES "SMART" LOCAL EXCHANGE STRATEGY
ANNOUNCES ACQUISITION OF MEGSINET NATIONAL INTERNET NETWORK
New York, New York (February 18, 1999) - CoreComm Limited (NASDAQ: COMMF)
announced today the formation of the first "Smart Local Exchange Carrier" (Smart
LEC) strategy in the U.S., and took a major step forward by signing a definitive
agreement to acquire Megsinet Inc., a fast-growing national Internet network and
regional telecommunications provider.
CoreComm's Smart LEC network strategy combines some of the latest communications
technologies together with a unique implementation plan to produce an extremely
low cost, highly efficient delivery system for bundled Internet access and local
and long distance telephony. In time, this network may provide video services as
well.
Commenting on today's announcement, Barclay Knapp, President and CEO, said "Over
the last several months we have perfected our consumer and business telephony
and Internet propositions while reselling the services of others. Our Smart LEC
network strategy now allows wide-scale facilities-based deployment of these
services very rapidly over many metropolitan areas, thereby significantly
improving time to market and gross margins, while retaining relatively low - and
success-driven - capital requirements.
"Our Smart LEC network combines the best of classic telephony switching with the
latest advances in Internet Protocol (IP), Digital Subscriber Line (DSL), and
Asynchronous Transfer Mode (ATM) technologies.
"The acquisition of Megsinet represents a major step forward in our Smart LEC
implementation. Their existing IP/ATM network and their imminent implementation
of telephony and DSL access in Chicago and other large markets puts us well down
the road. Together with CoreComm's acknowledged marketing expertise, the
combination creates a new kind of telecoms company, well-equipped to compete in
the modern era."
Megsinet, a privately held company based in Chicago, Illinois has constructed an
integrated IP network consisting of 57 major-city nodes linked via a high
capacity ATM network. Megsinet has also launched the implementation of
switched-based telephony access starting with the Chicago metropolitan area, and
has been a major proponent of IP telephony and DSL technologies along with its
implementation partners Nortel, Cisco and Ascend.
CoreComm will purchase 100% of Megsinet's stock for a total consideration of
approximately $18.5 million in cash plus approximately 1.5 million shares of
CoreComm common stock. As of December 31, 1998, Megsinet had approximately $26
million in property, plant and equipment and currently serves approximately
45,000 Internet subscribers. The transaction is expected to close in the second
quarter and is subject to certain conditions, including obtaining an effective
registration statement relating to the CoreComm stock to be issued as
consideration.
Continued...
<PAGE>
Separately, CoreComm secured the rights to use the Internet domain name
Core.com, and will transition its national Internet activities to this new name
over the next several months.
CoreComm Limited was formed in order to succeed to the businesses and assets
that were operated by OCOM Corporation in the state of Ohio and as an
appropriate vehicle to pursue new telecommunications opportunities. The Company
was formerly a subsidiary of what is now Cellular Communications of Puerto Rico,
Inc. CoreComm will continue its efforts in prepaid wireless and other
telecommunications services through its other wholly-owned subsidiaries.
CoreComm Limited is traded on the Nasdaq under the symbol: COMMF.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
In addition to the historical information presented, this release also includes
certain forward-looking statements concerning the timing of network installation
and service provision. Such statements represent the Company's reasonable
judgment on the future and are based on assumptions and factors that could cause
actual results to differ materially. Examples of relevant assumptions and
factors include, but are not limited to, the Company's ability to continue to
design and deploy efficient network routes, obtain and maintain any required
regulatory licenses or approvals and finance network development, all in a
timely manner, at reasonable costs and on satisfactory terms and conditions. The
Company assumes no obligation to update these forward-looking statements to
reflect actual results, changes in assumptions or changes in factors affecting
such statements.
* * * * * *
For further information contact: Michael A. Peterson, Director - Corporate
Development, Kathy Makrakis, Director - Investor Relations or Jeffrey G. Wyman,
Assistant General Counsel at (212) 906-8457.
EXHIBIT 99.3
================================================================================
ASSET PURCHASE AGREEMENT
by and between
CORECOMM LIMITED
as Purchaser
and
USN COMMUNICATIONS, INC.,
U.S. NETWORK CORPORATION,
USN COMMUNICATIONS WEST, INC.,
USN COMMUNICATIONS MIDWEST, INC.,
USN COMMUNICATIONS NORTHEAST, INC.,
USN COMMUNICATIONS ATLANTIC, INC.,
USN SOLUTIONS, INC.,
USN COMMUNICATIONS SOUTHWEST, INC.,
USN COMMUNICATIONS MAINE, INC.,
USN COMMUNICATIONS VIRGINIA, INC.,
QUEST UNITED, INC.,
USN COMMUNICATIONS LONG DISTANCE, INC.,
FONENET/OHIO, INC.
as Sellers
--------------------------------------------
Dated as of February 19, 1999
--------------------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF ASSETS................................... 3
Section 1.1 Purchase and Sale of Assets................................ 3
Section 1.2 Excluded Assets............................................ 5
Section 1.3 Assumed Liabilities........................................ 5
Section 1.4 Excluded Liabilities....................................... 6
Section 1.5 Consideration.............................................. 7
ARTICLE II THE CLOSING................................................... 9
Section 2.1 Closing.................................................... 9
Section 2.2 Consideration.............................................. 9
Section 2.4 Acquisition Subsidiaries................................... 13
Section 2.5 Allocation................................................. 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER.................. 13
Section 3.1 Organization............................................... 13
Section 3.2 Authority Relative to this Agreement....................... 14
Section 3.3 Consents and Approvals..................................... 14
Section 3.4 No Violations.............................................. 14
Section 3.5 SEC Reports and Financial Statements....................... 15
Section 3.6 Absence of Certain Changes................................. 16
Section 3.7 Litigation................................................. 16
Section 3.8 No Default................................................. 16
Section 3.9 No Violation of Law........................................ 17
Section 3.10 FCC Matters................................................ 17
Section 3.11 Taxes...................................................... 18
Section 3.12 Environmental Matters...................................... 19
Section 3.13 Employee Benefits; Labor Matters........................... 19
Section 3.14 Title to and Use of Property............................... 21
Section 3.15 Non-Competition Agreements................................. 23
Section 3.16 Brokers.................................................... 23
Section 3.17 Assumed Contracts.......................................... 23
Section 3.18 Intellectual Property...................................... 23
Section 3.19 Customers.................................................. 25
Section 3.20 Board Approval and Recommendation.......................... 26
Section 3.21 Investment Intent; Restricted Securities................... 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............... 27
Section 4.1 Organization............................................... 27
Section 4.2 Authority Relative to this Agreement....................... 27
Section 4.3 No Violations.............................................. 27
Section 4.4 Consents and Approvals..................................... 28
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Page
Section 4.5 Brokers.................................................... 28
Section 4.6 Financing.................................................. 28
ARTICLE V COVENANTS..................................................... 28
Section 5.1 Conduct of Business by the Sellers Pending the Closing..... 28
Section 5.2 Access and Information..................................... 30
Section 5.3 Cure of Defaults........................................... 30
Section 5.4 Cooperation................................................ 30
Section 5.5 Acquisition Proposal Procedures............................ 31
Section 5.6 Filings; Other Action...................................... 31
Section 5.7 Communications Licenses and Authorizations................. 32
Section 5.8 FCC Applications........................................... 32
Section 5.9 Public Announcements....................................... 33
Section 5.10 Bankruptcy Actions......................................... 33
Section 5.11 Tax Returns and Filings; Payment of Taxes.................. 34
Section 5.12 Sellers' Use of USN Name................................... 34
Section 5.13 Tax Matters................................................ 34
Section 5.15 Additional Matters......................................... 35
ARTICLE VI ADDITIONAL POST-CLOSING COVENANTS............................. 35
Section 6.1 Further Assurances......................................... 35
Section 6.2 Books and Records; Personnel............................... 35
Section 6.3 Third Party Rights......................................... 36
Section 6.4 Employee Withholding....................................... 36
Section 6.5 Employment of Sellers' Employees........................... 36
Section 6.6 Employee Benefits Generally for Transitioned Employees..... 37
Section 6.7 Certain Benefits........................................... 38
Section 6.8 Workers' Compensation...................................... 39
Section 6.9 Employment Taxes........................................... 39
Section 6.10 Stock Options and Stock Plans.............................. 39
Section 6.11 Collection of Past Due Accounts............................ 40
ARTICLE VII CONDITIONS PRECEDENT.......................................... 40
Section 7.1 Conditions Precedent to Obligations of Sellers
and Purchaser.............................................. 40
Section 7.2 Conditions Precedent to Obligation of Seller............... 41
Section 7.3 Conditions Precedent to Obligation of the Purchaser........ 41
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER............................. 44
Section 8.1 Termination by Mutual Consent.............................. 44
Section 8.2 Termination by Either Purchaser or the Seller.............. 44
Section 8.3 Termination by Sellers..................................... 44
Section 8.4 Termination by the Purchaser............................... 45
ii
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Page
Section 8.5 Effect of Termination and Abandonment...................... 45
Section 8.6 Expense Reimbursement; Termination Fee..................... 46
ARTICLE IX INDEMNIFICATION............................................... 47
Section 9.1 Obligation of the Seller to Indemnify...................... 47
Section 9.2 Notice and Opportunity to Defend........................... 48
Section 9.3 Limitations Regarding Indemnification Obligations.......... 49
Section 9.4 Indemnity Payments......................................... 49
ARTICLE X DELIVERIES AT CLOSING......................................... 50
Section 10.1 Sellers' Deliveries at Closing............................. 50
Section 10.2 Purchaser's Deliveries at Closing.......................... 50
Section 10.3 Required Documents......................................... 51
ARTICLE XI GENERAL PROVISIONS............................................ 51
Section 11.1 Survival of Representations, Warranties, and Agreements.... 51
Section 11.2 Notices.................................................... 51
Section 11.3 Descriptive Headings....................................... 52
Section 11.4 Entire Agreement; Assignment............................... 52
Section 11.5 Governing Law.............................................. 53
Section 11.6 Expenses................................................... 53
Section 11.7 Amendment.................................................. 53
Section 11.8 Waiver..................................................... 53
Section 11.9 Counterparts; Effectiveness................................ 53
Section 11.10 Severability; Validity; Parties in Interest................ 53
Section 11.11 Enforcement of Agreement................................... 54
ARTICLE XII DEFINITIONS................................................... 54
Section 12.1 Defined Terms.............................................. 54
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of February 19, 1999 (the "Agreement"),
by and between CORECOMM LIMITED, a Bermuda corporation ("CoreComm" which
together with any wholly owned subsidiary of CoreComm (each an "Acquisition
Subsidiary") to be designated by CoreComm pursuant to Section 2.4 are
collectively referred to herein as "Purchaser"), USN COMMUNICATIONS, INC., a
Delaware corporation (the "Company" or "USN"), and the subsidiaries of the
Company set forth on the signature page hereto (collectively, with the Company,
"Sellers"). Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in Article XII.
WHEREAS, the Company, directly and through its subsidiaries, is engaged in
the business of providing telecommunications products and services, including
local and long distance telephone retail services and other telecommunications
services (the "Business," which, for purposes of this Agreement, shall not
include the business of USN Wireless, Inc., a Connecticut corporation
("USN Wireless") or the subsidiaries of USN Wireless);
WHEREAS, the Sellers intend to file voluntary petitions (the "Petitions")
for relief commencing a case (the "Chapter 11 Case") under Chapter 11 of Title
11 of the United States Code, 11 U.S.C. sections 101 et seq. (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"); and
WHEREAS, Purchaser desires to purchase and obtain the assignment from
Sellers, and Sellers desire to sell, convey, assign, and transfer to Purchaser,
substantially all of the assets and properties of Sellers relating to the
Business, together with certain obligations and liabilities relating thereto,
all in the manner and subject to the terms and conditions set forth herein and
in accordance with sections 105, 363, and 365 of the Bankruptcy Code (the
"Contemplated Transactions").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, and agreements set forth herein, the
parties hereto agree as follows:
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ARTICLE I
PURCHASE AND SALE OF ASSETS
Section 1.1 Purchase and Sale of Assets. On the terms and subject to the
conditions set forth in this Agreement, at the Closing the Sellers shall sell,
assign, transfer, convey, and deliver to the Purchaser, and the Purchaser shall
purchase and accept from the Sellers, the Sellers' rights, title, and interests
in and to the Business, including, without limitation, in and to all the assets,
properties, rights, contractual rights of Sellers, and claims of Sellers related
to the Business (except as otherwise set forth in Section 1.2 hereof), wherever
located, whether tangible or intangible, as the same shall exist at the Closing
(such rights, title, and interests in and to all such assets, properties,
rights, contracts, and claims being collectively referred to herein as the
"Assets"), free and clear of all mortgages, pledges, liens, charges, equities,
encumbrances, defects in title, security interests, hypothecations, assessments,
easements, encroachments, consents, claims, options, reservations, restrictions,
condemnation proceedings, burdens or conflicts of all kinds (collectively,
"Encumbrances"), other than easements, encroachments and similar reservations,
restrictions and burdens which would not individually or in the aggregate have a
material adverse effect on the use or enjoyment of the Assets ("Permitted
Encumbrances."). The Assets shall include, without limitation, all the Sellers'
rights, title, and interests in and to the assets, properties, rights,
contracts, and claims described in clauses (a) through (q) below (but shall
specifically exclude those assets, properties, rights, contracts, and claims set
forth in Section 1.2):
(a) all furnishings, furniture, fixtures, office supplies, vehicles,
equipment, computers, and other tangible personal property;
(b) all accounts receivable and related deposits, security, or collateral
therefor, including recoverable customer deposits (collectively, the "Trade
Receivables"), but specifically excluding Past Due Accounts (as defined in
Section 1.2(e));
(c) [intentionally deleted]
(d) the Intellectual Property (as defined herein), the rights to sue for,
and remedies against, past, present, and future infringements thereof, and the
rights of priority and protection of interests therein under applicable laws;
(e) all copies of marketing brochures and materials and other printed or
written materials in any form or medium relating to the Sellers' ownership or
operation of the Business that Sellers are not required by law to retain and
duplicates of any such materials that the Sellers are required by law to retain;
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(f) all rights under all warranties, representations, and guarantees made
by suppliers, manufacturers, and contractors in connection with the operation of
the Business;
(g) all Seller Permits held by the Sellers (or, to the extent any such
Seller Permits are not freely transferable by the permittee, all right, title
and interest of Sellers in such Seller Permits to the full extent such right,
title and interest may be transferred);
(h) all contracts listed in Section 1.1(h) of the Seller Disclosure Letter
(the "Assumed Contracts"), and specifically excluding the Excluded Contracts (as
defined herein);
(i) all Communications Licenses (as defined herein) and all licenses issued
by state regulatory agencies or commissions to provide specifically defined
telecommunication services ("Certificates") (or, to the extent any such
Communication License or Certificate is not freely transferable by the
permittee, all right, title and interest of Sellers in such Communication
License or Certificate to the full extent such right, title and interest may be
transferred);
(j) all carrier or other codes used or useful in the operation of the
Business including, but not limited to, all exchange carrier, ACNA, RISD, OCN,
NECA and carrier identification codes;
(k) all books and records of the Business, including, without limitation,
data processing records, employment and personnel records, customer lists,
files, and records, advertising and marketing data and records, credit records,
records relating to suppliers and other data;
(l) all credits, prepaid expenses, deferred charges, advance payments,
security deposits and prepaid items (and, in each case, security interests from
third parties relating thereto);
(m) all goodwill relating to the Assets and the Business;
(n) all computer software programs and databases used by the Sellers,
whether owned, licensed (subject to applicable restrictions), leased, or
internally developed;
(o) all written leases and subleases, including all amendments and
modifications pursuant to which the Sellers lease any real property, all of
which leases and subleases and amendments and modifications thereto are
described in Section 1.1(o) of the Seller Disclosure Letter (the "Assumed
Leases"), but specifically excluding the Excluded Leases (as defined herein);
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(p) all telephone numbers used by Sellers in the conduct of the Business;
and
(q) those items described in Section 1.1(q) of the Seller Disclosure
Letter.
EXCEPT FOR SPECIFIC REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS
AGREEMENT, THE ASSETS ARE BEING SOLD ON AN "AS IS," "WHERE IS" BASIS AND SELLERS
MAKE NO WARRANTIES, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS OR OTHERWISE
WITH RESPECT TO THE ASSETS WHICH EXTEND BEYOND THE AFORESAID SPECIFIC
REPRESENTATIONS AND WARRANTIES.
Section 1.2 Excluded Assets. The following assets, properties, and rights
(the "Excluded Assets") are not included in the Assets and shall be retained by
Sellers:
(a) the capital stock of any direct or indirect subsidiary of Sellers set
forth in Section 1.2(a) of the Seller Disclosure Letter (the "Excluded
Subsidiaries");
(b) any contract set forth in Section 1.2(b) of the Seller Disclosure
Letter (the "Excluded Contracts");
(c) any contracts with respect to which Purchaser does not assume all
liabilities that arise on or after the Closing Date in accordance with the 365
Order;
(d) any real property leases or subleases set forth in Section 1.2(d) of
the Seller Disclosure Letter (the "Excluded Leases");
(e) subject to Section 6.11 and based upon the most current available
information as of the time of measurement, all accounts receivable that are both
(i) over 90 days past due prior to the Closing Date and (ii) from Persons who
ceased being customers no later than 90 days prior to the Closing Date ("Past
Due Accounts");
(f) all cash and cash equivalents of Sellers; and
(g) any other asset, property, right, contract or claim set forth in
Section 1.2(g) of the Seller Disclosure Letter.
Section 1.3 Assumed Liabilities. On the terms and subject to the conditions
set forth in this Agreement, at the Closing, Purchaser shall assume from
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the Sellers and thereafter pay, perform, or discharge in accordance with their
terms, only the following liabilities and obligations of the Sellers (the
"Assumed Liabilities"):
(a) all liabilities and obligations with respect to, arising out of, or
related to, the ownership, possession or use of the Assets, but in each case
only to the extent arising on or after the Closing Date;
(b) all obligations of the Sellers under the Assumed Contracts and Assumed
Leases which by the terms thereof are to be observed, paid, discharged or
performed, as the case may be, in each case at any time on or after the Closing
Date (including obligations for goods in transit which have been ordered but not
received by the Sellers prior to the Closing), but excluding obligations and
liabilities arising out of any breach or default by the Sellers under any such
Assumed Contract or Assumed Leases prior to the Closing Date (except as set
forth in Section 1.4(d) below);
(c) the liquidated amounts payable as set forth in Section 1.3(c) of the
Seller Disclosure Letter, subject to Section 1.5(b)(ii); and
(d) those items described in Section 1.3(d) of the Seller Disclosure
Letter.
Section 1.4 Excluded Liabilities. Notwithstanding anything to the contrary
contained herein, Purchaser shall not assume, or in any way be liable or
responsible for, any liabilities, commitments or obligations of the Sellers of
any kind or nature whatsoever, known or unknown, accrued, fixed, contingent or
otherwise, liquidated or unliquidated, choate or inchoate, due or to become due,
except for the Assumed Liabilities. Without limiting the generality of the
foregoing, Purchaser shall not assume, and the Sellers shall remain responsible
for the following: (a) any liabilities or obligations (whether absolute,
contingent or otherwise) with respect to, arising out of, or related to, the
Assets on or prior to the Closing Date, including, without limitation, any
liability or obligation of the Sellers or any of their employees, directors,
officers, affiliates or agents arising out of, relating to, or caused by
(whether directly or indirectly), the Sellers' ownership, possession, interest
in, use or control of the Assets; (b) any liability or obligation of the Sellers
for any Taxes (as defined herein) of any kind accrued for, applicable to or
arising from any period prior to the Closing Date; (c) any liability or
obligation in respect of employment plans (including, without limitation, any
pension, welfare, or other Seller Plan, as defined in Section 3.13(a)),
consulting, severance, change in control or similar agreements, including those
listed in Section 1.4 of the Seller Disclosure Letter (unless and to the extent
Purchaser in its discretion agrees in writing to assume any such obligations
after modifying or amending any such agreements as it may in its sole judgment
elect); (d) any cure amounts that become payable in respect of the assumption
and assignment to Purchaser of Assumed Contracts, Assumed Leases or other
executory
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contracts and unexpired leases assigned to Purchaser under the 365 Order ("Cure
Amounts"); provided, however, that Purchaser shall be responsible for payment,
and shall promptly pay, the first $500,000 of any Cure Amounts; provided,
further, that to the extent that any Cure Amounts are paid by any person or
entity (including any Seller) which is not Purchaser or any of its affiliates
prior to the Closing ("Pre-Closing Cure Amounts"), the Net Closing Cash
Consideration payable at Closing shall be increased by the total amount of any
such Pre-Closing Cure Amounts paid up to $500,000; and (e) except as set forth
in Section 1.3(c), any obligations or liabilities of any of the Sellers to BT
Alex Brown Inc.
Section 1.5 Consideration. The Consideration for the Assets shall consist
of (a) the Total Ohio Consideration (as defined below); (b) $25,000,000 minus
(i) the product of (x) the Total Ohio Consideration and (y) 55%, (ii) the
liquidated amount payable referred to in clause (i) of Section 1.3(c) of the
Seller Disclosure Letter, and (iii) any amounts (including principal, unpaid
interest and unreimbursed fees and expenses) owing to Purchaser under the DIP
Credit Agreement (such net amount payable in cash in immediately available
funds, the "Net Closing Cash Consideration"); (c) a warrant to purchase 250,000
shares of common stock of the Purchaser ("Shares"), at an exercise price equal
to $30.00 per Share, at any time, and from time to time, prior to the third
anniversary of the Closing Date (the "$30 Warrant"); (d) a warrant to purchase
100,000 Shares, at an exercise price equal to $50.00 per Share, at any time, and
from time to time, prior to the fifth anniversary of the Closing Date (the "$50
Warrant," and together with the $30 Warrant, the "Warrants") (it being
understood that the Net Closing Cash Consideration, the $30 Warrant and the $50
Warrant will be delivered at Closing); and (e) pursuant to Section 2.3 hereof,
the Contingent Payment (as defined in Section 2.3 herein), less the amount
payable referred to in clause (ii) of Section 1.3(c) of the Seller Disclosure
Letter. For purposes hereof, the "Initial Cash Consideration" shall mean the sum
of (a) the Total Ohio Consideration and (b) $25,000,000 minus (i) the product of
(x) the Total Ohio Consideration and (y) 55%.
Section 1.6 Ohio Revenues. (a) Three Business Days prior to the date on
which the Closing is scheduled to occur, the Company shall deliver a certificate
(the "Estimated Ohio Revenues Certificate") to the Purchaser, signed by the
president or chief accounting officer of the Company, setting forth in good
faith and in reasonable detail the Recent Monthly Revenues from Services (as
both are defined in Section 2.3) of the Sellers generated in Ohio (the "Ohio
Revenues") as of the Closing Date.
(b) The Purchaser shall pay to the Company five times the actual Ohio
Revenues (the "Total Ohio Consideration"), of which 87.5% of the amount set
forth in the Estimated Ohio Revenues Certificate shall be payable at Closing and
the balance, if any, shall be payable upon conclusion of the adjustment
procedures set forth in Section 1.5(c).
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(c) Adjustment Procedures. (i) For a ten (10) day period after the Closing
Date, Purchaser shall have the right to deliver to the Company a written notice
(the "Ohio Purchaser Objection") specifying in reasonable detail the basis for
its objection to the Estimated Ohio Revenues Certificate.
(ii) If the parties are unable to resolve the disagreement specified
in the Ohio Purchaser Objection within thirty (30) days after receipt by
the Company thereof, the disagreement shall be submitted to Arthur Andersen
& Co. or another nationally recognized firm of independent public
accountants as to which the Purchaser and the Company mutually agree (the
"Ohio Accountant"). Any adjustment resulting from the resolution of any
matters specified in the Ohio Purchaser Objection by the parties within
such 30 day period shall be paid promptly to the party entitled to receive
it.
(iii) The Ohio Accountant shall follow such procedures as it deems
appropriate for obtaining the necessary information in considering the
respective positions of the Purchaser and the Company. The Ohio Accountant
shall have the right to review all accounting records relevant to the
determination of the Ohio Revenues. The Ohio Accountant shall render its
determinations on the disagreement submitted to it within forty five (45)
days of submission of the disagreement by the Purchaser and the Company.
The Ohio Accountant's determination shall be final, conclusive and binding
upon the Purchaser and the Company (the "Final Ohio Determination"). In the
event that the Ohio Accountant makes a Final Ohio Determination in favor of
the Company, the Purchaser shall promptly make an adjustment payment to the
Company to the extent that the amount paid at Closing was less than five
(5) times the Ohio Revenues set forth in the Final Ohio Determination. In
the event that the Ohio Accountant makes a Final Ohio Determination in
favor of the Purchaser, but the amount paid at Closing was less than five
(5) times the Ohio Revenues set forth in the Final Ohio Determination, the
Purchaser shall pay the difference to the Company; and if the amount paid
at Closing was greater than five (5) times the Ohio Revenues set forth in
the Final Ohio Determination, then Purchaser shall either (i) collect the
difference from the Company, and the Company shall pay such difference, or
(ii) reduce the amount of the Contingent Payment by the amount of the
difference.
(iv) Fees and expenses for the Ohio Accountant shall be paid by the
Company if the Final Ohio Determination is less than 105% of the amount
certified in the Estimated Ohio Revenues Certificate; and if the Final Ohio
Determination is 105% or more of the amount certified in the Estimated Ohio
Revenues Certificate, the fees and expenses shall be paid by the Purchaser.
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ARTICLE II
THE CLOSING
Section 2.1 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Paul, Weiss,
Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New York
10019-6064 at 10:00 a.m. on the second Business Day after the conditions set
forth in Article VII shall have been satisfied or waived or at such other time,
date and place as shall be fixed by agreement among the parties (the date of the
Closing being herein referred to as the "Closing Date").
Section 2.2 Consideration. Subject to the terms and conditions hereof, at
the Closing, Purchaser shall:
(a) pay to the Company, by wire transfer of immediately available funds to
an account or accounts specified in writing not less than three Business Days
prior to the Closing by the Company, the Net Closing Cash Consideration and the
amount payable at Closing pursuant to Section 1.6(b);
(b) deliver, directly to the Company, the Warrants, pursuant to a Warrant
Agreement containing terms and conditions customary for a warrant issued by a
public company and reasonably satisfactory to Purchaser and Company; and
(c) assume the Assumed Liabilities pursuant to a duly executed Assignment
and Assumption Agreement, in customary form mutually agreeable to the parties.
Section 2.3 Contingent Payment.
(a) Total Revenues. On or prior to July 1, 2000, the Purchaser shall
deliver a certificate (the "Revenue Certificate") to the Company, signed by the
president or chief accounting officer of the Purchaser and setting forth in
reasonable detail the Total Revenues (as defined herein). If the amount of Total
Revenues exceeds the Initial Cash Consideration, then the cash consideration
payable under this Agreement shall be increased by an amount equal to the excess
of (i) the Total Revenues over (ii) the Initial Cash Consideration (the
"Contingent Payment"); provided, however, that in no event shall the sum of the
Contingent Payment and the Initial Cash Consideration exceed $85 million
(exclusive of any payments made or to be made in respect of Cure Payments). The
Contingent Payment, minus the liquidated amount payable as set forth in clause
(ii) of Section 1.3(c) of the Seller Disclosure Letter, shall be paid to the
Company in cash simultaneously with the delivery of the Revenue Certificate.
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(b) For purposes of this Section 2.3, the following terms shall be defined
as follows:
ACQUISITION STATE shall mean each Included State in which any member of the
Purchaser Group makes a Qualifying Acquisition prior to the termination of the
Measurement Period other than the state of Ohio.
CALENDAR/BILLING MONTH shall mean the most recent available calendar month
for which Revenue data is available, or if such data is not kept on a calendar
basis in the ordinary course by such company, then the most recent 30 day period
for which Revenue data is available.
INCLUDED STATES shall mean each of Illinois, Indiana, Michigan, Ohio,
Wisconsin, Massachusetts, New Hampshire, New York, Rhode Island, Maryland, New
Jersey, Pennsylvania, and Virginia.
MEASUREMENT PERIOD shall mean the period beginning October 1, 1999 and
ending March 31, 2000.
PURCHASER GROUP shall mean the Purchaser and its Subsidiaries (it being
understood that the businesses of the Sellers are included as part of Purchaser
Group after Closing).
QUALIFYING ACQUISITION shall mean a consummated acquisition of an
unaffiliated company which has Revenues derived from Services during the period
beginning on the later of (i) the closing of such acquisition and (ii) the
beginning of the Measurement Period ending on the conclusion of the Measurement
Period in an Included State; provided, however, that if the closing of such
acquisition is subsequent to the conclusion of the Measurement Period, such
acquisition shall not be a Qualifying Acquisition.
QUALIFYING REVENUES shall be the sum of (as calculated on a state-by-state
basis):
(i) Revenues from Services of the Purchaser Group in such Acquisition
State during the period beginning on the commencement of the
Measurement Period and concluding on the closing of the Qualifying
Acquisition in such state; provided, however, that if the closing of
such Qualifying Acquisition is prior to the commencement of the
Measurement Period, this amount shall be equal to zero; and
(ii) the product of:
(x) a fraction, (a) the numerator of which is Recent Monthly Revenues
from Services of the Purchaser Group in such state
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and (b) the denominator of which is (1) Recent Monthly Revenues
from Services of the Purchaser Group in such state plus (2)
Recent Monthly Revenues from Services of the company acquired in
the Qualifying Acquisition in such state; and
(y) the sum of (c) Revenues from Services of the Purchaser Group
during the period beginning on the later of: (1) the commencement
of the Measurement Period and (2) the closing of the Qualifying
Acquisition in such state, and concluding on the conclusion of
the Measurement Period and (d) Revenue from Services of the
company acquired in the Qualifying Acquisition in such state
during the period beginning on the later of: (1) the commencement
of the Measurement Period and (2) the closing of the Qualifying
Acquisition in such state, and concluding on the conclusion of
the Measurement Period.
RECENT MONTHLY REVENUES shall mean Revenues from the most recent available
Calendar/Billing Month immediately preceding the closing of the related
acquisition.
REVENUES shall mean revenues as determined in accordance with GAAP, it
being understood by the parties that such Revenues shall not include billings
for customers identified as canceled or illegitimate; Revenues "in" a given
state shall be deemed to be Revenues associated with lines located in such
state.
SERVICES shall mean resold and facilities-based local exchange services,
including IntraLATA toll and wireline long distance services sold to business
and residential end users.
TOTAL REVENUES shall be the sum of (i) Revenues derived from Services of
the Purchaser Group during the Measurement Period from USN States and (ii)
Qualifying Revenues derived from Services during the Measurement Period from
Acquisition States. Nothing herein shall be construed to "double count" or give
more than one (1) times credit for any Revenues during the Measurement Period.
USN STATES shall mean all Included States other than Acquisition States and
the state of Ohio.
If the Purchaser makes more than one Qualifying Acquisition in a given
state (each, an "Additional Qualifying Acquisition"), then the Qualifying
Revenues for such state shall be calculated in a manner consistent with the
manner described above for the period following the closing of such Additional
Qualifying Acquisition, with the Revenues from Services of such Additional
Qualifying Acquisition included in both the denominator (b) under (x) above as
well as the sum in (y) above.
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In no event, however, shall the Qualifying Revenues from an Acquisition
State exceed nine times the greater of (i) Sellers' Recent Monthly Revenues from
Services in such state as of the Closing Date and (ii) Purchaser Group's Recent
Monthly Revenues from Services in such state as of the closing of the related
Qualifying Acquisition.
(c) Review Process. (i) If the Company disagrees with the Total Revenues
determination set forth in the Revenue Certificate, the Company shall deliver to
the Purchaser, within thirty (30) days after delivery by the Purchaser of the
Revenue Certificate, a written notice (the "Objection Notice") specifying in
reasonable detail the basis for its disagreement and its determination of the
Total Revenues. If the Company fails to deliver an Objection Notice within such
thirty (30) day period, the amount set forth in the Revenue Certificate shall be
final, conclusive and binding on the Company and the Purchaser.
(ii) The Company shall have the right to review, during business
hours, on reasonable advance notice and without unduly interfering with the
Purchaser's operations, all books, accounting records and other materials
of the Purchaser that are relevant to determining the Total Revenues.
(iii) If the parties are unable to resolve the disagreement specified
in the Objection Notice within thirty (30) days after receipt by the
Purchaser thereof, the disagreement shall be submitted to Arthur Andersen &
Co. or another nationally recognized firm of independent public accountants
as to which the Purchaser and the Company mutually agree (the
"Accountant"). Any adjustment resulting from the resolution of any matters
specified in the Objection Notice by the parties within such 30 day period
shall be paid promptly to the party entitled to receive it.
(iv) The Accountant shall follow such procedures as it deems
appropriate for obtaining the necessary information in considering the
respective positions of the Purchaser and the Company. The Accountant shall
have the right to review all accounting records relevant to the
determination of the Total Revenues. The Accountant shall render its
determinations on the disagreement submitted to it within forty-five (45)
days of submission of the disagreement by the Purchaser and the Company.
The Accountant's determination shall be final, conclusive and binding upon
the Purchaser and the Company (the "Final Determination"). In the event
that the Accountant makes a Final Determination in favor of one party, the
other party shall promptly, and in any event within two Business Days of
the date of the Final Determination, make a corresponding adjustment
payment to the party to whose favor the Final Determination was made.
(v) Fees and expenses for the Accountant shall be paid by the Company
if the Final Determination is less than 105% of the amount certified in the
Revenue Certificate; and if the Final Determination is 105% or more of the
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amount certified in the Revenue Certificate, the fees and expenses shall be
paid by the Purchaser.
(d) Acknowledgment. Sellers acknowledge and agree that they have not
received any assurances as to the anticipated Total Revenues and that Purchaser
has not made any representation or warranty, express or implied, as to the
anticipated Total Revenues or Contingent Payment. While no representation or
warranty is made or assurances provided with respect to the achievement of any
portion of the Contingent Payment, (i) Purchaser agrees to operate the Business
in good faith and pursuant to commercially reasonable business practices,
including commercially reasonable customer care, collection, retention and
disconnection practices, and (ii) it is the intention of the Purchaser as of the
date of this Agreement (and Purchaser shall maintain such intention until the
earlier to occur of (x) the Closing Date and (y) 75 days after the date hereof)
to operate or cause the operation of the Business in good faith and in a manner
which reasonably balances the interest of the Purchaser in operating the
Business prudently and the interest of the Sellers in maximizing the amount of
the Contingent Payment ("Good Faith Operation of the Business"). A determination
by the board of directors or a subcommittee thereof of Purchaser that the
Purchaser and/or its Subsidiaries, as the case may be, have engaged throughout
the Measurement Period in a Good Faith Operation of the Business shall serve as
a presumption that such occurred.
Section 2.4 Acquisition Subsidiaries. On or before the Closing, CoreComm
may designate one or more Acquisition Subsidiaries in writing to receive all or
part of the Assets.
Section 2.5 Allocation. Purchaser and Sellers agree to cooperate to
allocate as soon as practicable after the date hereof, but in any event prior to
the Closing, the Consideration among the Assets, for all accounting and tax
purposes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as otherwise disclosed to the Purchaser in a schedule attached
hereto and made a part hereof (which schedule contains appropriate references to
identify the representations and warranties herein to which the information in
such schedule relates) (the "Seller Disclosure Letter"), Sellers jointly and
severally represent and warrant to Purchaser as follows:
Section 3.1 Organization. Each of the Sellers is a corporation validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to own, use, and operate
its properties and to carry on its business as it is now being conducted or
presently
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proposed to be conducted except where the failure to be so validly existing and
in good standing would not reasonably be expected to, individually or in the
aggregate, result in a Seller Material Adverse Effect. Each of the Sellers is
duly qualified as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified would not individually or in the aggregate
have a Seller Material Adverse Effect.
Section 3.2 Authority Relative to this Agreement. Each of the Sellers has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder. The execution, delivery, and performance of this
Agreement by each of the Sellers and the consummation by each of the Sellers of
the transactions contemplated hereby have been duly authorized by all requisite
corporate actions. Subject to the entry and effectiveness of the 363 Order and
the 365 Order, this Agreement has been duly and validly executed and delivered
by each of the Sellers and (assuming this Agreement constitutes a valid and
binding obligation of the Purchaser) constitutes a valid and binding agreement
of each of the Sellers, enforceable against each of the Sellers in accordance
with its terms, subject to applicable bankruptcy, reorganization, insolvency,
moratorium, and other laws affecting creditors' rights generally from time to
time in effect and to general equitable principles.
Section 3.3 Consents and Approvals. No consent, approval, or authorization
of, or declaration, filing, or registration with, any United States federal or
state government or regulatory authority is required to be made or obtained by
any of the Sellers in connection with the execution, delivery, and performance
of this Agreement and the consummation of the transactions contemplated hereby,
except (a) for consents, approvals, or authorizations of, or declarations or
filings with, the Bankruptcy Court, (b) for the filing of a notification and
report form under the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the expiration or earlier termination of the
applicable waiting period thereunder, (c) for Regulatory Approvals (as defined
in Section 7.3(d)(i) herein), (d) for consents, approvals, authorizations,
declarations, or rulings identified in Section 3.3 of the Seller Disclosure
Letter, and (e) for consents, approvals, authorizations, declarations, filings,
or registrations, which, if not obtained, would not, individually or in the
aggregate, have a Seller Material Adverse Effect. The items referred to in
clauses (a) through (d) of this Section 3.3 are hereinafter referred to as the
"Government Requirements."
Section 3.4 No Violations. Assuming that the consents, approvals,
authorizations, declarations, and filings referred to in Section 3.3 have been
made or obtained and shall remain in full force and effect and the conditions
set forth in Article VII shall have been satisfied or waived, neither the
execution, delivery, or performance of this Agreement by any Seller, nor the
consummation by any Seller of the transactions contemplated hereby, nor
compliance by any Seller with any of the
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provisions hereof will (a) conflict with or result in any breach of any
provisions of the articles of incorporation or bylaws of any Seller, (b) result
in a violation, or breach of, or constitute (with or without due notice or lapse
of time) a default (or give rise to any right of termination, cancellation,
vesting, payment, exercise, acceleration, suspension, or revocation) under any
of the terms, conditions, or provisions of any note, bond, mortgage, deed of
trust, security interest, indenture, license, contract, agreement, plan, or
other instrument or obligation to which any Seller is a party or by which any
Seller's properties or assets may be bound or affected, (c) violate any order,
writ, injunction, decree, statute, rule, or regulation applicable to any Seller
or to any Seller's properties or assets, (d) result in the creation or
imposition of any Encumbrance on any asset of any Seller, or (e) cause the
suspension or revocation of any permit, license, governmental authorization,
consent, or approval necessary for any Seller to conduct its business as
currently conducted, except in the case of clauses (b), (c), (d), and (e) for
violations, breaches, defaults, terminations, cancellations, accelerations,
creations, impositions, suspensions, or revocations that (i) would not
individually or in the aggregate have a Seller Material Adverse Effect, (ii) are
excused by or unenforceable as a result of the Sellers' filing of the Petitions,
or (iii) are set forth in Section 3.4 of the Seller Disclosure Letter.
Section 3.5 SEC Reports and Financial Statements. Except as set forth in
Section 3.5 of the Seller Disclosure Letter, USN has filed with the SEC, and has
heretofore made available to Purchaser true and complete copies of, all forms,
reports, schedules, statements and other documents required to be filed by it
since January 1, 1997 under the Securities Exchange Act of 1934 (the "Exchange
Act") or the Securities Act of 1933, (the "Securities Act") (as such documents
have been amended since the time of their filing, collectively, the "USN SEC
Documents"). Except as may be provided in subsequently filed USN SEC Documents
that are filed prior to the date hereof, as of their respective dates or, if
amended, as of the date of the last such amendment, the USN SEC Documents,
including, without limitation, any financial statements or schedules included
therein, (a) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder. No
subsidiary of USN is required to file any forms, reports or other documents with
the SEC. The audited financial statements of USN (the "USN Audited Financial
Statements") included in USN's Annual Report on Form 10K for the fiscal year
ended December 31, 1997 (the "USN 1997 10-K") have been prepared from, and are
in accordance with, the books and records of USN and its subsidiaries, comply in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position and the
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consolidated results of operations and cash flows of USN and its subsidiaries at
the dates and for the periods covered thereby. Section 3.5 of the Seller
Disclosure Letter contains complete unaudited copies of the statements of
income, the related balance sheets, and the notes thereto, of USN and its
subsidiaries for the twelve month period ended December 31, 1998 (the "USN
Unaudited Financial Statements"). Except for the absence of certain or all notes
thereto and except for normal year-end adjustments, the USN Unaudited Financial
Statements have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto, if any) and fairly present the consolidated financial position and the
consolidated results of operations and cash flows of USN and its subsidiaries at
the dates and for the periods covered thereby.
Section 3.6 Absence of Certain Changes. Except as set forth in Section 3.6
of the Seller Disclosure Letter or as contained in the USN SEC Documents, since
December 31, 1998, there has been no event or condition that has had (or is
reasonably likely to result in) a Seller Material Adverse Effect and, except as
set forth in Section 3.6 of the Seller Disclosure Letter, since December 31,
1998 the Sellers have not taken any action that, if taken after the date hereof,
would violate Section 5.1 hereof.
Section 3.7 Litigation. Except for the Chapter 11 Case and except as set
forth in Section 3.7 of the Seller Disclosure Letter, there is no suit, action,
proceeding, or investigation (whether at law or equity, before or by any
federal, state, or foreign commission, court, tribunal, board, agency, or
instrumentality, or before any arbitrator) pending or, to any Seller's
knowledge, threatened against or affecting any Seller, the outcome of which, in
the reasonable judgment of such Seller, is likely individually or in the
aggregate to have a Seller Material Adverse Effect, nor is there any judgment,
decree, injunction, rule, or order of any court, governmental department,
commission, agency, instrumentality, or arbitrator outstanding against any
Seller, or that, insofar as can reasonably be foreseen, in the future may
reasonably likely have, a Seller Material Adverse Effect.
Section 3.8 No Default. Except as set forth in Section 3.8 of the Seller
Disclosure Letter and except as a result of the Chapter 11 Case, no Seller is in
violation or breach of, or default under (and no event has occurred that with
notice or the lapse of time would constitute a violation or breach of, or a
default under) any term, condition, or provision of (a) its articles of
incorporation or bylaws, (b) any note, bond, mortgage, deed of trust, security
interest, indenture, license, agreement, plan, contract, lease, commitment, or
other instrument or obligation to which such Seller is a party or by which such
Seller's properties or assets may be bound or affected, (c) any order, writ,
injunction, decree, statute, rule, or regulation applicable to such Seller or to
such Seller's properties or assets, or (d) any permit, license, governmental
authorization, consent, or approval necessary for such Seller to conduct its
business as currently conducted, except in the case of clauses (b), (c), and (d)
above for breaches, defaults, or violations that are excused by or unenforceable
as a
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result of such Seller's filing of the Petitions and except as would not
reasonably be expected to, individually or in the aggregate, result in a Seller
Material Adverse Effect.
Section 3.9 No Violation of Law. Except as disclosed in Section 3.9 of the
Seller Disclosure Letter, no Seller is in violation of, or has been given notice
or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance, or judgment (including, without limitation, any
applicable environmental law, ordinance, or regulation) of any governmental or
regulatory body or authority except for such violations, notices or changes that
would not reasonably be expected to, individually or in the aggregate, result in
a Seller Material Adverse Effect. Except as disclosed in Section 3.9 of the
Seller Disclosure Letter or except as would not reasonably be expected to,
individually or in the aggregate, result in a Seller Material Adverse Effect, no
investigation or review by any governmental or regulatory body or authority is
pending or, to the best knowledge of each Seller, threatened, nor has any
governmental or regulatory body or authority indicated to any Seller an
intention to conduct the same.
Section 3.10 FCC Matters.
(a) The Sellers have obtained the necessary registration, certification or
other regulatory authorization from the appropriate governmental authority in
each such jurisdiction including, without limitation, state public service and
public utilities commissions ("State PUCs") (the "State Licenses") and hold all
licenses, permits, certificates, franchises, registrations and other
authorizations issued by the FCC (the "FCC Licenses") that are required for the
conduct of their businesses as presently conducted, and for the holding of their
assets, except where failure to hold such State Licenses or FCC Licenses would
not reasonably be expected to, individually or in the aggregate, result in a
Seller Material Adverse Effect. All of the FCC Licenses and the State Licenses
(collectively the "Communications Licenses") are set forth in Schedule 3.10(a)
hereto.
(b) Other than Communications Licenses which are immaterial, each of the
Communications Licenses was duly issued, and is valid and in full force and
effect and each of the Communications Licenses has not been modified, canceled,
revoked, or conditioned in any adverse manner other than in a manner which is
immaterial.
(c) Each holder of a Communications License is set forth on Section 3.10(c)
of the Seller Disclosure Letter and has operated in all material respects in
compliance with all terms thereof. Each holder of a Communications License is in
all material respects in compliance with, and its businesses have operated in
compliance with, the Communications Act or any applicable state regulations, and
has filed all registrations and reports and paid all required fees, including
any renewal applications, required by the Communications Act or any
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applicable state regulations. Except as would not reasonably be expected to,
individually or in the aggregate, result in a Seller Material Adverse Effect,
(i) there is no pending or, to the knowledge of the Sellers after due inquiry,
threatened action by or before the FCC or any State PUC to revoke, cancel,
suspend, modify or refuse to renew any of the Communications Licenses, and (ii)
except as set forth in Section 3.10(c) of the Seller Disclosure Letter, there is
not now issued, outstanding or, to the knowledge of the Sellers after due
inquiry, threatened any notice by the FCC or any State PUC of violation or
complaint against any Seller with respect to the operation of their respective
businesses.
(d) Except as set forth in Section 3.10 of the Seller Disclosure Letter or
as would not reasonably be expected to, individually or in the aggregate, result
in a Seller Material Adverse Effect, no event has occurred which permits the
revocation or termination of any of the Communications Licenses or the
imposition of any restriction thereon.
Section 3.11 Taxes. Except as set forth in Section 3.11 of the Seller
Disclosure Letter:
(a) each Seller has (i) duly filed (or there has been filed on its behalf)
with the appropriate governmental authorities all Tax Returns required to be
filed by it on or prior to the date hereof and the failure to file of which
could have a Seller Material Adverse Effect and (ii) duly paid (or made
provision for payment) in full in accordance with GAAP (or there has been paid
or provision has been made on its behalf for the payment of) all Taxes, the
failure to pay of which could have a Seller Material Adverse Effect, for all
periods ending through the date hereof;
(b) no federal, state, local, or foreign audits or other administrative
proceedings or court proceedings are presently pending with regard to any Taxes
or Tax Returns of any Seller wherein an adverse determination or ruling in any
one such proceeding or in all such proceedings in the aggregate would be
reasonably likely to have a Seller Material Adverse Effect;
(c) the federal income Tax Returns of all Sellers have been examined by the
Internal Revenue Service (or the applicable statutes of limitation for the
assessment of federal income Taxes for such periods have expired) for all
periods through and including December 31, 1994, and no deficiencies were
asserted as a result of such examinations that have not been resolved and fully
paid;
(d) no Seller has granted any requests, agreements, consents, or waivers to
amend the statutory period of limitations applicable to the assessment of any
Taxes with respect to any Tax Returns of such Seller;
(e) no Seller is a party to any tax sharing, tax indemnity, or other
agreement or arrangement relating to Taxes;
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(f) there are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the Assets;
(g) none of the Assets is property which is required to be treated as being
owned by any other person pursuant to the so-called "safe harbor lease"
provisions of former section 168(f)(8) of the Code;
(h) none of the Assets directly or indirectly secures any debt the interest
on which is tax exempt under section 103(a) of the Code; and
(i) none of the Assets is "tax-exempt use property" within the meaning of
Section 168(h) of the Code.
Section 3.12 Environmental Matters. Except as set forth in Section 3.12 of
the Seller Disclosure Letter and except as would not reasonably be expected to,
individually or in the aggregate, result in a Seller Material Adverse Effect,
(a) each Seller is in compliance with all federal, state, and local laws
governing the protection of the environment ("Environmental Laws"), (b) no
Seller has received any written notice not subsequently resolved with respect to
the business of, or any property owned or leased by any Seller from any
governmental entity or third party alleging that any Seller is not in compliance
with any Environmental Law, and (c) there has been no release of a Hazardous
Substance, as that term is defined in the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., in excess of a
reportable quantity on any real property leased by any Seller that is used in
the Business.
Section 3.13 Employee Benefits; Labor Matters.
(a) Section 3.13(a) of the Seller Disclosure Letter contains a true and
complete list of each plan, program, arrangement, agreement or commitment which
is an employment, consulting or deferred compensation agreement, or an executive
compensation, incentive bonus or other bonus, employee pension, profit-sharing,
savings, retirement, stock option, stock purchase, severance pay, life, health,
disability or accident insurance plan, or vacation, or other employee benefit
plan, program, arrangement, agreement or commitment, including, without
limitation, any "employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), in each
case, that is sponsored, maintained or contributed to or required to be
contributed to by any Seller or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that together with any Seller would be
deemed a "single employer" within the meaning of Section 4001(b) of ERISA, or to
which any Seller or an ERISA Affiliate is party, for the benefit of any "Offer
Employee" (as defined in Section 6.5(b)) (individually, a "Seller Plan," and
collectively, the "Seller Plans"). No Seller Plan is subject to Title IV or
Section 302 of ERISA.
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(b) No liability under Title IV or Section 302 of ERISA has been incurred
by any Seller or any ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a risk to any Seller or any ERISA Affiliate of
incurring any such liability, other than liability for premiums due the Pension
Benefit Guaranty Corporation (which premiums have been paid when due). Insofar
as the representation made in this Section 3.13(b) applies to Sections 4064,
4069 or 4204 of Title IV of ERISA, it is made with respect to any employee
benefit plan, program, agreement or arrangement subject to Title IV of ERISA to
which the Seller or any ERISA Affiliate made, or was required to make,
contributions during the six (6)-year period ending on the last day of the most
recent plan year ended prior to the Closing Date.
(c) Except as set forth in Section 3.13(c) of the Seller Disclosure Letter,
with respect to each Seller Plan (A) all payments due from any Seller or any
Seller Affiliate to date have been made when due and all amounts properly
accrued to date or as of the date of Closing as liabilities of any Seller which
have not been paid have been properly recorded on the books of any Seller; (B)
the Sellers and each Seller Affiliate have complied with, and each such Seller
Plan conforms in form and operation to, all applicable laws and regulations,
including, but not limited to, ERISA and the Code, in all material respects; (C)
each such Seller Plan which is an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) and intended to qualify under Section 401 of the Code has
received a favorable determination letter from the Internal Revenue Service with
respect to such qualification, its related trust has been determined to be
exempt from taxation under Section 501(a) of the Code, and since the date of
such letter through the date of this Agreement, nothing has occurred that has or
is likely to adversely affect such qualification or exemption; and (D) there are
no actions, suits or claims pending (other than routine claims for benefits) or
threatened with respect to such Seller Plan or against the assets of such Seller
Plan.
(d) Except as set forth in Section 3.13(d) of the Seller Disclosure Letter,
the consummation of the transactions contemplated by this Agreement will not (A)
accelerate the time of the payment or vesting of, or increase the amount of,
compensation due to any Offer Employee, (B) reasonably be expected to result in
any payment of any "excess parachute payment" to any Offer Employee under
Section 280G of the Code, (C) result in any liability to any Offer Employee,
including, but not limited to, as a result of the Worker Adjustment Retraining
and Notification Act or (D) entitle any Offer Employee to severance pay,
unemployment compensation or similar payment.
(e) Neither the Company nor any subsidiary has an announced plan or legally
binding commitment to create any additional Seller Plans or to amend or modify
any existing Seller Plan.
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(f) Except as set forth in Section 3.13(f) of the Seller Disclosure Letter,
no Seller has any material liability, whether absolute or contingent, direct or
indirect, including any obligations under any Seller Plan, with respect to any
misclassification of a person as an independent contractor rather than as an
employee.
(g) No Seller has an obligation to provide or any direct or indirect
liability, whether contingent or otherwise, with respect to the provision of
health or death benefits to or in respect of former employees, except as may be
required pursuant to COBRA and the costs of which are fully paid by such former
employees.
(h) With respect to each Seller Plan, the Sellers have delivered to
Purchaser a current, accurate and complete copy (or, to the extent no such copy
exists, an accurate description) thereof and, to the extent applicable: (A) any
related trust agreement or other funding instrument; (B) the most recent IRS
determination letter, if applicable; (C) the most recent summary plan
description, (w) the most recent Form 5500 and attached schedules, (x) the most
recent audited financial statement, and (y) the most recent actuarial valuation
report.
(i) No Seller or Seller Affiliate is a party to any collective bargaining
agreements and there are no labor unions or other organizations representing,
purporting to represent, or attempting to represent, any employee of any Seller.
(j) Except as set forth in Section 3.13(j) of the Seller Disclosure Letter,
no Seller or Seller Affiliate has violated any provision of federal or state law
or any governmental rule or regulation, or any order, decree, judgment
arbitration award of any court, arbitrator or any government agency regarding
the terms and conditions of employment of employees, former employees or
prospective employees or other labor related matters, including, without
limitation, laws, rules, regulations, orders, rulings, decrees, judgments and
awards relating to discrimination, fair labor standards and occupational health
and safety, wrongful discharge or violation of the personal rights of employees,
former employees or prospective employees.
Section 3.14 Title to and Use of Property.
(a) (i) At the Closing Purchaser will acquire good and marketable title to
all of the Assets, in each case free and clear of any and all Encumbrances
(including, without limitation, any and all claims that may arise by reason of
the execution, delivery or performance by Sellers of this Agreement), other than
Permitted Encumbrances and with respect to Assumed Contracts and Assumed Leases,
subject to Purchaser's obligation to make the $500,000 of payments provided for
in Section 1.4(d) or Section 1.5, as applicable;
(ii) no Seller owns any real property;
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(iii) all real estate constituting any part of the Assets that is used
or held by any Seller pursuant to any lease or other contractual
arrangement as of the date hereof is designated in Section 3.14(a) of the
Seller Disclosure Letter;
(iv) other than Permitted Encumbrances and with respect to Assumed
Contracts and Assumed Leases, subject to Purchaser's obligation to make the
$500,000 of payments provided for in Section 1.4(d) or Section 1.5, as
applicable, immediately prior to the Closing, each Seller will have
leasehold interests in, or has other valid contractual rights to use, all
of the Assets of the type described in Section 3.14(a)(iii) above;
(v) other than Permitted Encumbrances and with respect to Assumed
Contracts and Assumed Leases, subject to Purchaser's obligation to make the
$500,000 of payments provided for in Section 1.4(d) or Section 1.5, as
applicable, immediately prior to the Closing, each Seller will be in
peaceful and undisturbed possession of the space or estate under the leases
or other agreements under which it is a tenant or entitled to use the
properties of a type described in Section 3.14(a)(iv) above being sold;
(vi) as to all Assets of the type described in Section 3.14(a)(i) or
(iii) above, either (A) each Seller is in no respect in default or
delinquent in performing its obligations under such Assumed Contract, lease
or other agreement, or (B) other than Permitted Encumbrances and with
respect to Assumed Contracts and Assumed Leases, subject to Purchaser's
obligation to make the $500,000 of payments provided for in Section 1.4(d)
or Section 1.5, as applicable, any such default or delinquency will be
fully cured, or otherwise may not be asserted against Purchaser or the
Assets, as a result of the entry by the Bankruptcy Court of the 363 Order
and the 365 Order, such that the Sellers' rights in and under all such
leases or other agreements shall vest in Purchaser upon the Closing without
reversion or diminution; and
(vii) each Seller has good and valid rights of ingress and egress to
and from all the real property leased by it and constituting part of the
Assets being sold from and to the public street systems for all usual
street, road, and utility purposes.
(b) The Assets include, without limitation, all real property and related
rights and interests and all personal property of the Sellers, both tangible and
intangible, necessary to conduct the Business as it is currently conducted by
the Sellers, to provide all services that are the subject of Governmental
Permits to the extent currently provided by the Sellers, except for any Assets
which, individually or in the aggregate if not owned by any Seller, would not
result in a Seller Material Adverse Effect.
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Section 3.15 Non-Competition Agreements. Except as set forth in Section
3.15 of the Seller Disclosure Letter, no Seller, nor any officer, director, or
key employee of any Seller, is a party to any agreement that purports to
restrict or prohibit it, directly or indirectly, from engaging in any business
involving telecommunications or any other material business currently engaged in
by a Seller, or to the knowledge of any Seller, by Purchaser or any corporations
affiliated with Purchaser. Except as set forth in Section 3.15 of the Seller
Disclosure Letter, no officer, director, or key employee of any Seller is a
party to any agreement, which by virtue of such person's relationship with such
Seller, restricts such Seller from, directly or indirectly, engaging in any of
the business described above.
Section 3.16 Brokers. Except as contemplated by Section 1.5 of the Seller
Disclosure Letter, no person is entitled to any brokerage, financial advisory,
finder's or similar fee or commission payable by any Seller in connection with
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of such Seller.
Section 3.17 Contracts. Section 3.17 of the Seller Disclosure Letter
contains a complete and accurate list of all contracts of the Sellers
("Contracts") involving payments or other consideration in excess of (i)
$100,000 in any twelve-month period or (ii) $200,000 over the life of the
Contract. True and complete copies of each such written Contract (or written
summaries of the terms of any such oral Contract or any oral modification of a
written Contract) have been heretofore made available to the Purchaser; and, in
the case of each Contract listed in Section 1.1(h) of the Seller Disclosure
Letter, true and complete copies of each such Contract have been made available
to Purchaser prior to the execution of this Agreement. Except as set forth in
Section 3.17 of the Seller Disclosure Letter, as of the date of this Agreement,
no Seller has received notice, nor does it otherwise have knowledge, that any
party to any such Contract intends to cancel, terminate, or refuse to renew such
Contract or to exercise or decline to exercise any option or right thereunder,
except as would not reasonably be expected to, individually or in the aggregate,
result in a Seller Material Adverse Effect and except to the extent any such
notice would be ineffective and unenforceable as a result of the Chapter 11
Case. The Contracts that the Sellers have in place with their customers are
valid and binding upon such customers in accordance with their terms, except to
the extent that the failure of such Contracts to be valid and binding would not
have a Seller Material Adverse Effect.
Section 3.18 Intellectual Property.
(a) "Intellectual Property" shall mean all of the following as they exist
in all jurisdictions throughout the world, in each case, to the extent owned by,
licensed to, or otherwise used by any Seller:
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(i) patents, patent applications, and other patent rights (including
any divisions, continuations, continuations-in-part, substitutions, or
reissues thereof, whether or not patents are issued on any such
applications and whether or not any such applications are modified,
withdrawn, or resubmitted);
(ii) trademarks, service marks, trade dress, trade names, brand names,
Internet domain names, designs, logos, or corporate names, whether
registered or unregistered, and all registrations and applications for
registration thereof;
(iii) copyright registrations and applications for registration
thereof and non-registered copyrights;
(iv) trade secrets, designs, research, processes, procedures,
techniques, methods, know-how, data, mask works, inventions, and other
proprietary rights (whether or not patentable or subject to copyright, mask
work, or trade secret protection) (collectively, "Technology"); and
(v) computer software programs, including, without limitation, all
source code, object code, and material documentation related thereto (the
"Software").
(b) Intellectual Property Disclosure. Section 3.18(b) of the Seller
Disclosure Letter sets forth all United States and foreign patents and patent
applications, trademark and service mark registrations and applications,
Internet domain name registrations and applications, and copyright registrations
and applications owned or licensed by any Seller, specifying as to each item, as
applicable: the nature of the item, including the title; the owner of the item;
the jurisdictions in which the item is issued or registered or in which an
application for issuance or registration has been filed; and the issuance,
registration, or application numbers and dates.
(c) Ownership. Except as would not reasonably be expected to, individually
or in the aggregate, result in a Seller Material Adverse Effect, each Seller
will own as of the Closing date and transfer to the Purchaser, free and clear of
any and all Encumbrances, and as of the Closing Date will have the unrestricted
right to use, sell, or license, all Intellectual Property used in the conduct of
the business of any Seller.
(d) Claims. Except as would not reasonably be expected to, individually or
in the aggregate, result in a Seller Material Adverse Effect, no Seller has
been, during the three (3) years preceding the date hereof, a party to any claim
or action, nor, to the knowledge of any Seller, is any claim or action
threatened, that challenges the validity, enforceability, ownership, or right to
use, sell, or license any
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Intellectual Property. Except as would not reasonably be expected to,
individually or in the aggregate, result in a Seller Material Adverse Effect, to
the knowledge of any Seller, no third party is infringing upon any Intellectual
Property.
(e) Administration and Enforcement. Except as would not reasonably be
expected to, individually or in the aggregate, result in a Seller Material
Adverse Effect, each Seller has taken all necessary and desirable action to
maintain and protect each item of Intellectual Property owned by any such
Seller.
(f) Software. All material Software used in the Business is described in
Section 3.18(f) of the Seller Disclosure Letter. Such Software is held by a
Seller legitimately, is fully and freely transferable to the Purchaser without
any third party consent, and to the knowledge of any Seller is free from any
significant software defect, performs in conformance with its documentation, and
does not contain any bugs or viruses or any code or mechanism that may be
reasonably likely to materially interfere with the operation of such Software.
(g) Year 2000 Compliance. Except as set forth in Section 3.18(g) of the
Seller Disclosure Letter, all Software, hardware, databases, and embedded
control systems used by any Seller (collectively, the "Systems") are Year 2000
Compliant, except as would not reasonably be expected to, individually or in the
aggregate, result in a Seller Material Adverse Effect. As used herein, the term
"Year 2000 Compliant" means that the Systems (i) accurately process date and
time data (including, without limitation, calculating, comparing, and
sequencing) from, into, and between the twentieth and twenty-first centuries,
the years 1999 and 2000, and leap year calculations and (ii) operate accurately
with other software and hardware that use standard date format (4 digits) for
representation of the year. Except as set forth in Section 3.18(g) of the Seller
Disclosure Letter, Purchaser shall not be required to incur any material
expenses arising from or relating to the failure of any of the Systems or
Products to be Year 2000 Compliant.
Section 3.19 Customers. Section 3.19 of the Seller Disclosure Letter sets
forth (a) the names of the 450 highest revenue generating customers of the
Business for the January 10, 1999 billing run that together accounted for
approximately 20% of the net revenues of the Business during the relevant
billing period (the "Top Customers") and (b) the amount for which each such
customer was invoiced during such period. As of the date of this Agreement, to
Sellers' knowledge, except as set forth in Section 3.19 of the Seller Disclosure
Letter and except as would not reasonably be expected to, individually or in the
aggregate, result in a Seller Material Adverse Effect, neither the Company nor
any of its subsidiaries has received any notice (written or oral) that any Top
Customer of the Business (i) has ceased, or will cease, to purchase
telecommunication services of the Business, (ii) has reduced or will reduce the
purchase of telecommunication services of the Business or (iii) has sought, or
is seeking, to reduce the price it will pay for
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telecommunication services of the Business, including, in each case, after the
consummation of the Contemplated Transactions.
Section 3.20 Board Approval and Recommendation. The Board of Directors of
the Company has determined that an immediate sale and assignment of the Assets
pursuant to this Agreement under Sections 363 and 365 of the Bankruptcy Code is
in the best interests of the Company.
Section 3.21 Investment Intent; Restricted Securities. The Company is
acquiring the Warrants solely for its own account and not with the view to, or
for resale in connection with, any distribution thereof, other than as may be
permitted under applicable law without registration under the Securities Act.
The Company understands that the Warrants and the common stock of the Purchaser
issuable upon exercise of the Warrants have not been and are not being
registered under the Securities Act by reason of specified exemptions therefrom
which depend upon, among other things, the bona fide nature of its investment
intent as expressed herein and as explicitly acknowledged hereby, and that the
Warrants and the common stock of the Purchaser issuable upon exercise of the
Warrants are "Restricted Securities" under the federal securities laws inasmuch
as they are being acquired from the Purchaser in a transaction not involving a
public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act only in
certain limited sets of circumstances. The Company agrees that the Warrants may
not be sold, transferred, offered for sale, pledged, hypothecated or otherwise
disposed of without registration under the Securities Act except as may be
permitted under applicable law. The Company may distribute or transfer the
Warrants only upon delivery to the Purchaser of (i) an opinion of legal counsel,
in form and substance, and from counsel, reasonably satisfactory to the
Purchaser, that the distribution or transfer may be effected without
registration under the Securities Act, or (ii) a Bankruptcy Court order,
reasonably satisfactory to the Purchaser, that such distribution or transfer of
the Warrants and the stock issuable upon exercise thereof is exempt from the
Securities Act; provided, however, that if the Company is unable to distribute
or transfer the Warrants pursuant to clause (i) or (ii) above, after using
reasonable commercial efforts to do so, then the Purchaser shall, at the request
of the beneficial holders of a majority interest of the Warrants given not
earlier than four months after the Closing Date, register the Warrants under the
Securities Act pursuant to a customary registration rights agreement. The
Warrants will bear appropriate legends restricting transfer.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Except as otherwise disclosed to the Company in a schedule annexed hereto
(which schedule contains appropriate references to identify the representations
and warranties herein to which the information in such schedule relates) (the
"Purchaser Disclosure Letter"), the Purchaser represents and warrants to the
Company as follows:
Section 4.1 Organization. The Purchaser is a corporation validly existing
and in good standing under the laws of its jurisdiction of incorporation.
Section 4.2 Authority Relative to this Agreement. The Purchaser has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution, delivery, and performance of this
Agreement by the Purchaser and the consummation by the Purchaser of the
transactions contem plated hereby have been duly authorized by all requisite
corporate actions. This Agreement has been duly and validly executed and
delivered by the Purchaser and (assuming this Agreement constitutes a valid and
binding obligation of the Sellers) constitutes a valid and binding agreement of
the Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to applicable bankruptcy, reorganization, insolvency, moratorium, and
other laws affecting creditors' rights generally from time to time in effect and
to general equitable principles.
Section 4.3 No Violations. Neither the execution, delivery, or performance
of this Agreement by the Purchaser, nor the consummation by the Purchaser of the
transactions contemplated hereby, nor compliance by the Purchaser with any of
the provisions hereof, will (a) except for the approval of the Bankruptcy Court,
require Purchaser to obtain any consent, approval or action of, or make any
filing with or give notice to, any Governmental Body or any other person, (b)
conflict with or result in any breach of any provisions of the certificate of
incorporation or bylaws of the Purchaser, (c) result in a violation or breach
of, or constitute (with or without due notice or lapse of time) a default (or
give rise to any right of termination, cancellation, acceleration, vesting,
payment, exercise, suspension, or revocation) under any of the terms,
conditions, or provisions of any note, bond, mortgage, deed of trust, security
interest, indenture, license, concrete agreement, plan, or other instrument or
obligation to which the Purchaser is a party or by which the Purchaser or the
Purchaser's properties or assets may be bound or affected, (d) violate any
order, writ, injunction. decree, statute, rule, or regulation applicable to the
Purchaser or the Purchaser's properties or assets, or (e) result in the creation
or imposition of any Encumbrance on any asset of the Purchaser, except in the
case of clauses (c), (d), and (e), for violations, breaches, defaults,
terminations, cancellations, accelerations, creations, impositions, suspensions,
or revocations that would individually or in the aggregate have a material
adverse effect on the assets, condition (financial or
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otherwise) or operations of Purchaser (a "Purchaser Material Adverse Effect")
except as set forth in Section 4.3 of the Purchaser Disclosure Letter.
Section 4.4 Consents and Approvals. No consent, approval, or authorization
of, or declaration, filing, or registration with, any United States federal or
state government or regulatory authority is required to be made or obtained by
Purchaser in connection with the execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby, except
for Government Requirements.
Section 4.5 Brokers. Except as set forth in Section 4.5 of the Purchaser
Disclosure Letter, no person is entitled to any brokerage, financial advisory,
finder's or similar fee or commission payable by Purchaser in connection with
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Purchaser.
Section 4.6 Financing. The Purchaser represents that as of the date hereof
it has, and on the Closing Date it will have, sufficient funds to deliver the
Consideration to the Company.
ARTICLE V
COVENANTS
Section 5.1 Conduct of Business by the Sellers Pending the Closing.
Subject, after the date on which the Sellers file the Petitions, to any
obligations as a debtor or debtor-in-possession under the Bankruptcy Code, or
order of the Bankruptcy Court, the Sellers shall use all commercially reasonable
efforts to conduct their businesses in the ordinary course consistent with past
practice and taking into account the filing of the Petitions, including, without
limitation meeting their post-Petition obligations as they become due,
fulfilling their commitments to customers and not reducing their current pricing
to customers. The Sellers shall also use all commercially reasonable efforts to
preserve intact their business organizations and relationships with third
parties and to keep available the services of their present officers and key
employees, subject to the terms of this Agreement. Except as provided in the
Seller Disclosure Letter or except as otherwise contemplated under this
Agreement, from the date hereof until the Closing Date, without the prior
written consent of the Purchaser:
(a) Sellers shall not adopt or propose any change in their certificates of
incorporation or bylaws, except a change that would not have any adverse affect
on the Contemplated Transactions;
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(b) Sellers shall not declare, set aside, or pay any dividend or other
distribution with respect to any shares of their capital stock, or split,
combine, or reclassify any of their capital stock, or repurchase, redeem, or
otherwise acquire any shares of their capital stock;
(c) Sellers shall not merge or consolidate with any other person or (except
in the ordinary course of business) acquire a material amount of assets of any
other person;
(d) Sellers shall not lease, license, or otherwise surrender, relinquish,
encumber, or dispose of any Assets other than the disposition of obsolete or
damaged Assets in the ordinary course of their business;
(e) Sellers shall not change any method of accounting or accounting
practice used by them, except for any change required by GAAP;
(f) Sellers shall not establish or increase the benefits under, or promise
to establish, modify or increase the benefits under, any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan or employment, consulting or severance
agreement, or otherwise increase the compensation payable to any directors,
officers or employees of the Sellers, except in the ordinary course of business
and consistent with past practice, or establish, adopt or enter into any
collective bargaining agreement;
(g) Sellers shall not make or agree to make any capital expenditures or
capital additions that exceed $25,000 per calendar month;
(h) Sellers shall not in any material respect change their methods of
collecting Trade Receivables, and shall not make or agree to make any settlement
concerning a Trade Receivable in excess of $5,000 without consulting with
Purchaser;
(i) Sellers shall not agree or commit to do any of the foregoing; and
(j) except to the extent necessary to comply with the requirements of
applicable laws and regulations, Sellers shall not (i) take, or agree or commit
to take, any action that would make any representation or warranty of the
Sellers hereunder inaccurate in any respect at, or as of any time prior to, the
Closing Date, (ii) omit, or agree or commit to omit, to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any respect on the Closing Date, or (iii) take, or agree or commit to take,
any action that would result
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in, or is reasonably likely to result in, any of the conditions set forth in
Article VII not being satisfied.
Section 5.2 Access and Information. Sellers shall afford to Purchaser and
to Purchaser's financial advisors, legal counsel, accountants, consultants,
financing sources, and other authorized representatives access during normal
business hours and without material disruption to the Business of the Sellers
throughout the period prior to the Closing Date to all their books, records,
properties, plants, and personnel which relate to the Business of the Sellers
and, during such period, shall furnish as promptly as practicable to Purchaser
(a) a copy of each report, schedule, and other document filed or received by
them pursuant to the requirements of federal or state securities laws and (b)
all other information as Purchaser reasonably may request in furtherance of the
Contemplated Transactions, provided that Purchaser shall not disclose any
competitively sensitive information (unless Purchaser is legally compelled to do
so in which case Purchaser shall provide to the Company with prompt written
notice of the legal requirement to disclose so that the Company may seek a
protective order or other appropriate remedy) and no investigation pursuant to
this Section 5.2 shall affect any representations or warranties made herein or
the conditions to the obligations of the respective parties to consummate the
transactions contemplated by this Agreement. The Purchaser and the Company shall
continue to abide by the terms of Section (e)(ii) of the letter agreement, dated
as of January 13, 1999 (the "1999 Letter Agreement"), between the Company,
Purchaser and BT Alex Brown Inc.
Section 5.3 Cure of Defaults. Subject to the prior approval of the
Bankruptcy Court and subject to Section 1.4(d) herein, the Sellers shall, on or
prior to the Closing, cure any and all defaults and breaches under and satisfy
(or, with respect to any Assumed Liability or obligation that cannot be rendered
non-contingent and liquidated prior to the Closing Date, make effective
provision reasonably satisfactory to Purchaser and the Bankruptcy Court for
satisfaction from funds of Seller of) any Assumed Liability or obligation
arising from or relating to pre-Closing periods under the Assumed Contracts and
Assumed Leases so that such Assumed Contracts and Assumed Leases may be assumed
by the Sellers and assigned to the Purchaser in accordance with the provisions
of Section 365 of the Bankruptcy Code and this Agreement (including, without
limitation, Section 1.3 hereof); provided that the Sellers shall not be required
to cure any default or breach under any Assumed Contract or satisfy any
obligation arising from any Assumed Contract unless and until the aggregate
amount of all such obligations exceeds $500,000. Each Seller agrees that it will
promptly take such actions as are reasonably necessary to obtain the 365 Order,
assuming and assigning to Purchaser the Assumed Contracts and Assumed Leases.
Section 5.4 Cooperation. The Purchaser shall have the right to have its
designated representatives, as provided to the Company in writing from time to
time (the "Designated Purchaser Representatives"), present within normal
business
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hours and without material disruption to the Business of the Sellers for
consultation at the Sellers' principal offices from the date hereof until the
Closing. Such Designated Purchaser Representatives shall have the right to
review and become familiar with the conduct of the Business and shall be
available to be consulted and shall have authority on behalf of the Purchaser in
regard to consultation in regard to Material Decisions (as defined below in this
Section 5.4). Purchaser shall take all reasonable actions necessary to ensure
that its Designated Purchaser Representatives will be readily available during
normal business hours. Without notice to and consultation with the Designated
Purchaser Representatives, no Seller shall take any action involving any
Material Decision. "Material Decision" shall mean, for purposes of this
Agreement, any of the following to the extent the same may affect the Assets,
the Assumed Liabilities or the Business following the Closing: (i) any entering
into, termination or material amendment of, or waiver of any Seller's rights in
respect of, any Assumed Contract; (ii) any purchase order for products or
supplies involving in excess of $10,000 in any instance to be delivered, or the
payment for which shall become due, after the Closing; (iii) the acceptance of
any material customer Assumed Contract that deviates in any material respect
from the terms and conditions of current pricing policies; (iv) any action to
respond to any material customer or regulatory complaint outside of the normal
course of business; (v) any general communication with customers related to the
Business or to the Contemplated Transactions; or (vi) a material change in
pricing, promotional, marketing or any other decision that would affect in any
material respect any Seller's customary profit margins.
Section 5.5 Acquisition Proposal Procedures. The Sellers shall, promptly
(and in any event within three (3) Business Days following the date of this
Agreement), seek the entry of an order (the "Overbid Procedures Order") in the
form of Exhibit A hereto providing for procedures substantially similar to those
set forth in Appendix A hereto.
Section 5.6 Filings; Other Action. Subject to the terms and conditions
herein provided, as promptly as practicable, Sellers and Purchaser shall (a)
promptly make all filings and submissions under the HSR Act, (b) use all
commercially reasonable efforts to cooperate with each other in (i) determining
which filings are required to be made prior to the Closing Date with, and which
material consents, approvals, permits, or authorizations are required to be
obtained prior to the Closing Date from, governmental or regulatory authorities
of the United States and the several states or the District of Columbia, and
foreign jurisdictions in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
timely making all such filings and timely seeking all such consents, approvals,
permits, or authorizations, and (c) using all commercially reasonable efforts to
take, or cause to be taken, all other action and do, or cause to be done, all
other things reasonably necessary or appropriate to consummate the transactions
contemplated by this Agreement, as soon as practicable. In connection with the
foregoing, the Company will promptly provide the Purchaser, and Purchaser will
promptly provide the Company, with copies of all correspondence,
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filings, or communications (or memoranda setting forth the substance thereof)
between such party or any of its representatives, on the one hand, and any
governmental agency or authority or members of their respective staffs, on the
other hand, with respect to this Agreement and the transactions contemplated
hereby. The parties acknowledge that certain actions may be necessary with
respect to the foregoing in making notifications and obtaining clearances
consents, approvals, waivers, or similar third party actions that are material
to the consummation of the transactions contemplated hereby, and each party
agrees to take all commercially reasonable actions as are necessary, to complete
such notifications and obtain such clearances, approvals, waivers, or third
party actions, except where such consequence, event, or occurrence would have a
Purchaser Material Adverse Effect or a Seller Material Adverse Effect, as the
case may be.
Section 5.7 Communications Licenses and Authorizations. The Sellers shall
obtain and maintain in full force and effect all approvals, consents, permits,
licenses and other authorizations, and any renewals thereof, from the FCC and
any appropriate State PUC, and make all filings and reports and pay all fees,
reasonably necessary or required for the continued operation of the Business, as
and when such approvals, consents, permits, licenses, filings or reports or
other authorizations are necessary or required.
Section 5.8 FCC Applications.
(a) As promptly as practicable and in any event within five Business Days
after the execution and delivery of this Agreement, the Sellers shall prepare
and deliver to Purchaser Seller's completed portion of all appropriate
applications for FCC approval, and such other documents as may be required, with
respect to the assignment of licenses of Sellers to Purchaser (collectively, the
"FCC Applications"). As promptly as practicable and in any event within five
Business Days after the execution and delivery of this Agreement, the Purchaser
shall prepare and deliver to the Sellers, the Purchaser's portion of all
appropriate FCC Applications. As soon as practical after the execution and
delivery of this Agreement, the parties shall file, or cause to be filed, the
FCC Applications. If the Closing shall not have occurred for any reason within
any applicable initial consummation period relating to the FCC's grant of the
FCC Applications, and neither Sellers nor Purchaser shall have terminated this
Agreement pursuant to Section 8.1, Purchaser and Sellers shall jointly request
one or more extensions of the consummation period of such grant. No party hereto
shall knowingly take, or fail to take, any action if the intent or reasonably
anticipated consequence of such action or failure to act is, or would be, to
cause the FCC not to grant approval of the FCC Applications or materially delay
either such approval or the consummation of the assignment of licences and the
Customer Base of the Sellers.
(b) Purchaser and Sellers shall cooperate to determine a plan to
expeditiously obtain applicable governmental approvals, clearances, consents and
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authorizations necessary to effectuate the Contemplated Transactions. Subject to
the determination of such plan, as promptly as practicable and in any event
within five Business Days after the execution and delivery of this Agreement,
the Sellers shall prepare and deliver to Purchaser Sellers' portions of all
required applications for approval by State PUCs, and such other documents as
may be required, with respect to the assignment of licenses and Customer Base of
the Sellers (collectively, the "State PUC Applications"). As promptly as
practicable and in any event within five Business Days after the execution and
delivery of this Agreement, the Purchaser shall prepare and deliver to Sellers
Purchaser's portion of all appropriate State PUC Applications. Subject to the
first sentence of this Section 5.8(b), as soon as practicable after the
execution and delivery of this Agreement, the parties shall file, or cause to be
filed, the State PUC Applications. If the Closing shall not have occurred for
any reason within any applicable consummation period relating to any State PUC's
grant of any State PUC Application, and neither Purchaser nor the Sellers shall
have terminated this Agreement pursuant to Section 8.1, Purchaser and Sellers
shall jointly request one or more extensions of the consummation period of such
grant. No party hereto shall knowingly take, or fail to take, any action if the
intent or reasonably anticipated consequence of such action or failure to act
is, or would be, to cause any State PUC not to grant approval of any State PUC
Application or materially delay either such approval or the consummation of the
assignment of licenses and Customer Base of Sellers.
(c) The Company and Purchaser shall each pay one-half of any FCC fees that
may be payable in connection with the filing or granting of approval of the FCC
Applications. Except as set forth in the immediately preceding sentence, each of
Purchaser and the Sellers shall bear its own expenses in connection with the
preparation and prosecution of the FCC Applications and the State PUC
Applications. Purchaser and Sellers shall each use their reasonable best efforts
to prosecute the FCC Applications and the State PUC Applications in good faith
and with due diligence before the FCC and the State PUCs and in connection
therewith shall take such action or actions as may be necessary or reasonably
required in connection with the FCC Applications and the State PUC Applications,
including furnishing to the FCC and the State PUCs any documents, materials or
other information requested by the FCC and the State PUCs in order to obtain
such approvals as expeditiously as practicable.
Section 5.9 Public Announcements. Purchaser, on the one hand, and Sellers,
on the other hand, agree that they will not issue any press release or respond
to any press inquiry with respect to this Agreement or the transactions
contemplated hereby without the prior approval of the other parties (which
approval will not be unreasonably withheld), except as may be required by
applicable law or any requirement of any stock exchange on which the stock of
either party is listed.
Section 5.10 Bankruptcy Actions. (a) As promptly as practicable after the
Petition Date (and in any event within three (3) Business Days following the
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date of this Agreement), Sellers shall file with the Bankruptcy Court a motion,
supporting papers, notices and a proposed Overbid Procedures Order, all in form
and substance reasonably satisfactory to Purchaser, seeking the Bankruptcy
Court's approval of the terms of Sections 5.1, 5.5 and 8.6 of this Agreement,
and observance and performance of such terms by Sellers and Purchaser during the
pendency of the Chapter 11 Case, and Sellers shall use their best efforts to
obtain the entry of the Overbid Procedures Order.
(b) As promptly as practicable after the Petition Date (and in any event
within three (3) Business Days following the date of this Agreement), Sellers
will file with the Bankruptcy Court a motion, supporting papers, notices and a
form of 363 Order and 365 Order, all in form and substance reasonably
satisfactory to Purchaser, seeking the Bankruptcy Court's approval of this
Agreement, Sellers' performance under this Agreement, assumption and assignment
of the Assumed Contracts and Assumed Leases and Sellers' retention of the
Excluded Assets, and identification of the cash payments required under Section
5.3 of this Agreement, and, subject to the provisions of the Overbid Procedures
Order, Sellers shall use their best efforts to obtain entry of the 363 Order and
the 365 Order.
(c) Sellers will provide Purchaser with copies of all motions,
applications, and supporting papers prepared by Sellers (including forms of
orders and notices to interested parties) relating to Purchaser or the
transactions contemplated by this Agreement prior to the filing thereof in the
Chapter 11 Cases and shall not, other than due to emergency time constraints,
file any such document unless it is in form and substance reasonably
satisfactory to Purchaser.
(d) Sellers shall give appropriate notice, and provide appropriate
opportunity for hearing, to all parties entitled thereto, of all motions,
orders, hearings, or other proceedings relating to this Agreement or the
transactions contemplated hereby.
Section 5.11 Tax Returns and Filings; Payment of Taxes. Each Seller shall
prepare all of its Tax Returns for periods ending on or prior to the Closing
Date. Sellers shall be responsible for paying all of their Taxes for periods
ending on or prior to the Closing Date.
Section 5.12 Sellers' Use of USN Name. Each Seller covenants that at the
Closing, or as soon thereafter as is practicable (but in no event later than the
tenth day after the Closing Date), it will not use any name, mark, logo, trade
name or trademark incorporating "USN" or "USN Communications, Inc." in any
business activity except as is necessary for the administration of the
Bankruptcy Cases.
Section 5.13 Tax Matters. All personal property transfer, documentary,
sales, use, registration, value-added and other similar Taxes (including
interest, penalties and additions to Tax) incurred in connection with the
Contemplated
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Transactions ("Transfer Taxes") shall be borne by Sellers, and Sellers, jointly
and severally, shall indemnify Purchaser for any such Taxes incurred by
Purchaser as a result of Sellers' failure to timely pay such Taxes.
Section 5.14 1998 Unaudited Financial Statements. Purchaser shall instruct
its accountants to take all necessary action so as to effect Section 7.3(g) as
soon as practicable.
Section 5.15 Additional Matters. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all commercially reasonable
efforts 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 laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using all commercially reasonable efforts to obtain
all necessary waivers, consents, and approvals in connection with the
Governmental Requirements and to effect all necessary registrations and filings.
ARTICLE VI
ADDITIONAL POST-CLOSING COVENANTS
Section 6.1 Further Assurances. In addition to the provisions of this
Agreement, from time to time after the Closing Date, the Sellers and the
Purchaser will use all commercially reasonable efforts to execute and deliver
such other instruments of conveyance, transfer or assumption, as the case may
be, and take such other action as may be reasonably requested to implement more
effectively the conveyance and transfer of the Assets to the Purchaser and the
assumption of the Assumed Liabilities by the Purchaser.
Section 6.2 Books and Records; Personnel. For a period of seven (7) years
after the Closing Date (or such longer period as may be required by any
governmental or regulatory body or authority or ongoing Legal Proceeding):
(a) Purchaser shall not dispose of or destroy any of the business records
and files of the Business other than in connection with a sale or other
disposition of the Business or any portion thereof. If the Purchaser wishes to
dispose of or destroy such records and files after that time, it shall first
give sixty (60) days' prior written notice to the Company, and the Company shall
have the right, at its option and expense, upon prior written notice to the
Purchaser within such sixty-day period, to take possession of the records and
files within ninety (90) days after the date of the notice from the Company.
(b) Purchaser shall allow the Company and any of its directors, officers,
employees, counsel, representatives, accountants, and auditors
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(collectively, the "Seller Representatives") access to all business records and
files of the Sellers or the Business that are transferred to it in connection
herewith, which are reasonably required by such party in anticipation of, or
preparation for, any existing or future Legal Proceeding involving a Seller or
Tax Return preparation, during regular business hours and upon reasonable notice
at Purchaser's principal place of business or at any location where such records
are stored, and the Seller Representatives shall have the right to make copies
of any such records and files; provided, however, that any such access or
copying shall be had or done in such a manner so as not to interfere with the
normal conduct of Purchaser's business or operations.
Section 6.3 Third Party Rights. No provision of this Agreement shall create
any third party beneficiary rights in any employee or former employee of the
Sellers or any other persons or entities (including any beneficiary or dependent
thereof), in respect of continued employment (or resumed employment) for any
specified period of any nature or kind whatsoever, and no provision of this
Agreement shall create such third party beneficiary rights in any such persons
or entities in respect of any benefits that may be provided, directly or
indirectly, under any Seller Plan.
Section 6.4 Employee Withholding. Sellers agree that, pursuant to the
"Alternative Procedure" provided in Section 5 of Revenue Procedure 84-77, 1984-2
C.B. 753, with respect to filing and furnishing IRS Forms W-2, W-3, and 941, (a)
Sellers shall report on a "predecessor-successor" basis, as set forth therein,
(b) Sellers shall be relieved from furnishing Forms W-2 to any of the employees
of Sellers who become employees of Purchaser, and (c) Purchaser shall assume the
obligations of Sellers to furnish such Forms W-2 to such employees for the year
in which the Closing occurs.
Section 6.5 Employment of Sellers' Employees. (a) Each Seller shall use its
reasonable best efforts to retain all of its employees, and to maintain in good
standing through the Closing all relationships and agreements with employees,
independent contractors or consultants, in each case from the date hereof
through the Closing Date and to cooperate with Purchaser in hiring its employees
offered employment pursuant to Section 6.5(b); provided, that the foregoing
shall not require that any Seller offer any compensation or other incentives in
addition to the compensation and benefits being provided or required to be
provided as of the date of this Agreement.
(b) Purchaser shall offer employment to each employee listed on Section
6.5(b) of the Purchaser Disclosure Letter (each such employee, an "Offer
Employee") on such other terms and conditions as Purchaser shall determine
(subject to the provisions of this Article 6) effective as of the Closing Date.
The time at which the employment by the Purchaser of each such employee who is
not an Inactive Employee as of the Closing and who accepts such offer of
employment shall become
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effective (the "Effective Time of Employment") shall be the Closing. The
Effective Time of Employment of any such employee who is an Inactive Employee as
of the Closing shall be such time (if any) within one hundred eighty (180) days
following the Closing Date when such Inactive Employee returns to active status
and reports to work with Purchaser and Purchaser shall have no obligation to
employ any such Inactive Employee who fails to return to active status or to
report to work with Purchaser within such one hundred eighty (180) day period.
Each employee who becomes employed by Purchaser pursuant to one of the two
preceding sentences shall be considered a "Transitioned Employee" from and after
his or her Effective Time of Employment.
(c) From the date hereof through the Closing, Sellers shall permit
Purchaser to communicate with Sellers' employees and consultants, at reasonable
times and upon reasonable notice, concerning Purchaser's plans, operations,
business, customer relations and general personnel matters and to interview
Sellers' employees and consultants and review the personnel records and such
other information concerning Sellers' employees and consultants as Purchaser may
reasonably request (subject to obtaining any legally required written permission
of any affected employee or consultant and to other applicable law), provided
that such contacts shall be conducted in a manner that is reasonably acceptable
to Sellers.
(d) Sellers shall be solely responsible for any and all liabilities
relating to or arising in connection with any actual, constructive or deemed
termination of employment (including without limitation, severance or separation
pay or benefits or other similar compensation or benefits under any applicable
law, regulation or Seller Plan) (i) to or with respect to any employee other
than a Transitioned Employee, whether as a result of the consummation of the
transactions contemplated hereby or otherwise, and whether before, on or after
the Closing Date, or (ii) to any Transitioned Employee, whether as a result of
(A) the consummation of the transaction contemplated hereby, (B) any event
occurring before the Closing or (C) any action or failure to act of Sellers.
Except as provided in this Section 6.5(d) and Section 6.6(c), Purchaser shall be
solely responsible for any and all Liabilities relating to or arising in
connection with any actual, constructive or deemed termination of employment of
any Transitioned Employee with Purchaser after such Transitioned Employee's
Effective Time of Employment. Notwithstanding any other provision hereof,
Purchaser shall be solely responsible for any and all liabilities relating to or
arising in connection with any actual, constructive or deemed termination of
employment by the Purchaser of any Offer Employee who becomes an employee of
Purchaser or any affiliate of Purchaser within one year following the Closing
Date.
Section 6.6 Employee Benefits Generally for Transitioned Employees. (a)
Purchaser shall provide employee benefit plans and arrangements to Transitioned
Employees that are substantially comparable in the aggregate to the benefits
provided to similarly situated employees of Purchaser.
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(b) As soon as practicable after the date of this Agreement, but in any
event before the Closing, Sellers shall prepare, subject to Purchaser's approval
(which shall not be unreasonably withheld), a schedule setting forth, for each
Offer Employee, such employee's length of service with Sellers before the
Closing ("Prior Service"). Following the Closing, except as specifically
provided in the next sentence, Purchaser shall recognize each Transitioned
Employee's Prior Service, solely for purposes of determining vesting and
eligibility to participate in, but not for purposes of the schedule of benefits
or benefit accrual under, any employee benefit plan sponsored by Purchaser in
which such Transitioned Employee participates after the Closing Date.
Notwithstanding the foregoing: (i) Purchaser shall recognize Prior Service of
each Transitioned Employee for purposes of determining the amount of such
Transitioned Employee's vacation and level of benefits for any severance plan or
arrangement; and (ii) Purchaser shall not be obligated as a result of this
Agreement to recognize any Prior Service for purposes of eligibility for or
vesting in retiree welfare benefits.
(c) Without limiting the generality of any other provision of this Article
6, Sellers shall remain solely responsible for any and all liabilities relating
to or arising in connection with the Seller Plans, whether arising before, on or
after the Closing Date.
Section 6.7 Certain Benefits. (a) From and after the Closing Date, Sellers
shall remain solely responsible for any and all liabilities relating to or
arising in connection with (i) the requirements of Section 4980B of the Code to
provide continuation of health care coverage under any Seller Plan in respect of
(A) employees who are not Transitioned Employees, and their beneficiaries and
dependents, and (B) Transitioned Employees and their beneficiaries and
dependents arising as a result of qualifying events that occur on or before the
Transitioned Employee's Effective Time of Employment, and (ii) claims for
Welfare Benefits incurred by Transitioned Employees and their beneficiaries and
dependents before the Transitioned Employee's Effective Time of Employment. The
foregoing notwithstanding, Purchaser shall be responsible for any and all
liabilities relating to or arising in connection with (i) the requirements of
Section 4980B of the Code to provide continuation of health care coverage in
respect of Transitioned Employees and their beneficiaries and dependents arising
as a result of qualifying events after the Employee's Effective Time of
Employment, and (ii) claims for Welfare Benefits incurred by Transitioned
Employees and their beneficiaries and dependents after the Transitioned
Employee's Effective Time of Employment.
(b) For purposes of this Agreement, the following claims and liabilities
shall be deemed to be incurred as follows: (i) life, accidental death and
dismemberment and business travel accident insurance benefits, upon the death,
disability or accident giving rise to such benefits; (ii) salary continuation or
other short-term disability benefits, or long-term disability, upon the event or
commencement of the condition resulting in the disability giving rise to such
benefit;
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(iii) hospital-provided health, dental, prescription drug or other benefits,
which become payable with respect to any hospital confinement, upon commencement
of such confinement; and (iv) health, dental and/or prescription drug benefits,
upon provision of such services, materials or supplies.
Section 6.8 Workers' Compensation. (a) From and after the Closing Date: (i)
Sellers shall remain solely responsible for any and all liabilities relating to
or arising in connection with any and all claims for workers' compensation
benefits (A) incurred by or in respect of any employee who is not a Transitioned
Employee on, prior to or after the Closing Date, and (B) incurred by or in
respect of Transitioned Employees on or before the Closing Date and (ii)
Purchaser shall be solely responsible for any and all liabilities to or in
respect of any Transitioned Employee relating to or arising in connection with
any and all claims for worker's compensation benefits incurred after the Closing
Date.
(b) For purposes of this Section 6.8, a claim for workers' compensation
benefits shall be deemed to be incurred when the first event giving rise to the
claim occurs.
Section 6.9 Employment Taxes. (a) Sellers and Purchaser shall (i) treat
Purchaser as a "successor employer" and each Seller as a "Predecessor," within
the meaning of Sections 3121(a)(1) and 3306(b)(1) of the Code, with respect to
Transitioned Employees who are employed by Purchaser for purposes of Taxes
imposed under the United States Federal Unemployment Tax Act ("FUTA") or the
United States Federal Insurance Contributions Act ("FICA"), and (ii) cooperate
with each other to avoid, to the extent possible, the filing of more than one
IRS Form W-2 with respect to each such Transitioned Employee for the calendar
year within which the Closing Date occurs.
(b) At the reasonable request of Purchaser with respect to any particular
applicable Tax Law relating to employment, unemployment insurance, social
security, disability, workers' compensation, payroll, health care or other
similar Tax other than Taxes imposed under FICA and FUTA, Sellers shall and
Purchaser shall (i) treat Purchaser as a successor employer and each Seller as a
predecessor employer, within the meaning of the relevant provisions of such Tax
Law, with respect to Transitioned Employees who are employed by Purchaser, and
(ii) cooperate with each other to avoid, to the extent possible, the filing of
more than one individual information reporting form pursuant to each such Tax
Law with respect to each such Transitioned Employee for the calendar year within
which the Closing Date occurs.
Section 6.10 Stock Options and Stock Plans. Sellers and Purchaser agree
that Purchaser shall not assume the obligations of the Sellers with regard to
options to purchase shares of capital stock of any Seller issued or granted
pursuant to either the 1994 Stock Option Plan or the Omnibus Securities Plan
(the "Company Plan Options").
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Section 6.11 Collection of Past Due Accounts. Purchaser shall have the
exclusive authority to collect Past Due Accounts for a period of 120 days
following the Closing Date (the "Collection Period") and shall exercise
reasonable, good faith efforts to collect such Past Due Accounts, consistent
with its customary practices. Purchaser shall promptly deliver any funds
collected pursuant to this Section 6.11 to the Company. Subsequent to the
Collection Period Sellers shall have the authority to collect Past Due Accounts
from each Person who (i) was no longer a customer at the conclusion of the
Collection Period and (ii) did not make any payment toward his Past Due Account
during the Collection Period.
Section 6.12 Continued Cooperation. If the Closing occurs at a time when
all Regulatory Approvals have not been obtained, the parties shall (i) continue
to abide by their obligations hereunder to obtain all Regulatory Approvals and
(ii) cooperate in continuing to operate the Business, to the extent commercially
practicable, in the ordinary course in those states with respect to which
Regulatory Approvals have not been obtained, with the Purchaser receiving the
economic benefits of such operation.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions Precedent to Obligations of Sellers and Purchaser.
The respective obligations of each party to effect the transactions contemplated
by this Agreement shall be subject to the satisfaction at or prior to the
Closing Date of the following conditions:
(a) any waiting period applicable to the consummation of the transactions
contemplated by this Agreement under the HSR Act shall have expired or been
terminated, and no action shall have been instituted by the Department of
Justice or the Federal Trade Commission challenging or seeking to enjoin the
consummation of the transactions contemplated by this Agreement, which action
shall not have been withdrawn or terminated without requiring Purchaser to
dispose of or divest any of its assets or businesses (including, without
limitation, any material Asset or Business), or discontinue or refrain from
conducting any of its operations;
(b) no statute, rule, regulation, executive order, decree, ruling, or
preliminary or permanent injunction shall have been enacted, entered,
promulgated, or enforced by any federal or state court or governmental authority
that prohibits, restrains, enjoins, or restricts the consummation of the
transactions contemplated by this Agreement that has not been withdrawn or
terminated; and
(c) no claim, action, suit, arbitration, inquiry, proceeding or
investigation (each, an "Action") shall have been commenced by or before any
United
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States federal, state, or local or any foreign government, governmental,
regulatory, or administrative authority, agency, or commission or any court,
tribunal or judicial or arbitral body against the Purchaser or any Seller,
seeking to restrain or materially and adversely alter the transactions
contemplated by this Agreement that, in the reasonable good faith determination
of any party, is likely to render it impossible or unlawful to consummate such
transactions; provided, however, that the provisions of this Section 7.1(c)
shall not apply to any party that has directly or indirectly solicited or
encouraged any such Action;
Section 7.2 Conditions Precedent to Obligation of Sellers. The obligation
of Sellers to effect the transactions contemplated by this Agreement shall be
subject to the satisfaction at or prior to the Closing Date of the following
additional conditions:
(a) the Purchaser shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Closing Date; the representations and warranties of the Purchaser contained
in this Agreement that are qualified with respect to materiality shall be true
and correct in all respects, and such representations and warranties that are
not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and as of the Closing Date as if made at
and as of such date; and the Sellers shall have received a certificate of the
chairman of the board, the president, an executive vice president, a senior vice
president, or the chief financial officer of the Purchaser as to the
satisfaction of this condition; and
(b) the 363 Order and 365 Order shall have been entered by the Bankruptcy
Court in substantially the form contemplated by this Agreement (unless Sellers
shall have agreed to modify such form) and shall not have been reversed, stayed,
modified or amended in any manner adverse to the Sellers.
Section 7.3 Conditions Precedent to Obligation of the Purchaser. The
obligation of the Purchaser to effect the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing Date
of the following additional conditions (compliance with which or the occurrence
of which may be waived in whole or in part in a writing executed by Purchaser,
unless such a waiver is prohibited by law):
(a) each Seller shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Closing Date; the representations and warranties of the Sellers contained in
this Agreement that are qualified with respect to materiality (i.e., with
respect to the occurrence or likely occurrence of a Seller Material Adverse
Effect or materiality) shall be true and correct in all respects, such
representations and warranties that are not so qualified shall be true and
correct in all material respects and all breaches of such non-qualified
representations and warranties, when combined with all matters
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and conditions that, but for the qualification by reference to a Seller Material
Adverse Effect or materiality, would have constituted breaches of the
representations and warranties that are qualified by such reference, shall not
collectively constitute or give rise to a Seller Material Adverse Effect, in
each case as of the date of this Agreement and, except with respect to
representations and warranties which speak as to an earlier date, at and as of
the Closing Date as if made at and as of such date; and the Purchaser shall have
received a certificate of the chairman of the board, the president, a vice
president or the chief financial officer of the Company as to the satisfaction
of this condition;
(b) the 363 Order and 365 Order shall have been entered by the Bankruptcy
Court in substantially the form contemplated by this Agreement and shall not
have been reversed, stayed, modified or amended in any manner adverse to the
Purchaser, and shall not be subject to any pending appeal or motion for
rehearing or reconsideration, and shall remain valid and binding and in full
force and effect;
(c) Purchaser or any of the Purchaser's Subsidiaries shall have received or
otherwise hold all United States, Illinois, Michigan, Ohio, New York and
Massachusetts government approvals, clearances, consents and authorizations
necessary to permit Purchaser (or, if applicable, Purchaser shall have received
adequate assurances reasonably satisfactory to it that all such approvals,
clearances, consents and authorizations will be given) to operate the Business
in the United States, Illinois, Michigan, Ohio, New York and Massachusetts, and
no such Seller Permits shall be revoked, or, to the extent applicable, shall
fail to be transferred to Purchaser without additional expense and subject to no
additional restrictions or burdens on the permittee other than those which in
the aggregate are immaterial; and
(d) (i) Subject to clause (iii) below, all consents, waivers, approvals,
certificates and other authorizations required to be obtained from the FCC (the
"FCC Approvals") or from any other governmental authority asserting jurisdiction
over the Company or one of its subsidiaries (the "State Approvals")
(collectively, the "Regulatory Approvals"), including, without limitation, any
State PUC, that are required in order to consummate the transactions
contemplated hereby shall have been obtained by a Final Order (as hereinafter
defined). Other than those which in the aggregate are immaterial, all filings
and notices required to be made by the Sellers prior to the consummation of the
transaction contemplated hereby shall have been made. For purposes of this
Agreement, "Final Order" shall mean an action by the FCC or other regulatory
authority (including State PUCs) (x) that is not reversed, stayed, enjoined, set
aside, annulled or suspended within the deadline, if any, provided by applicable
statute or regulation, (y) with respect to which no request for stay, motion or
petition for reconsideration, application or request for review, or notice of
appeal or other judicial petition for review that is filed within such period is
pending and (z) as to which the deadlines, if any, for filing any such request,
motion, petition, application, appeal or notice, and for the entry by the FCC or
other
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regulatory authority of orders staying, reconsidering or reviewing on its own
motion have expired.
(ii) Subject to clause (iii) below, Purchaser shall have obtained all
rights necessary to offer telecommunication services to Sellers' Customer
Base on a resale basis from each incumbent local exchange carrier ("ILEC")
so that it may conduct the Business as conducted as of the date hereof
either (x) through a local exchange resale tariff generally available to
all carriers, or (y) through an executed interconnection or resale
agreement (each, a "Service Agreement"), approved by all government
authorities asserting jurisdiction over any local exchange market.
(iii) Notwithstanding clauses (i) and (ii), in the event that all
Regulatory Approvals and Service Agreements have not been obtained by the
tenth (10th) Business Day before the date set forth in 8.2(b), but those
Regulatory Approvals from the FCC and the State PUCs governing the states
of Massachusetts, New York, Ohio, Michigan and Illinois (the "Critical
States") and those Service Agreements have been obtained which apply to the
Critical States, then such failure to obtain 100% of the required
Regulatory Approvals and Service Agreements shall not be deemed a failure
of this condition;
(e) Purchaser shall have received the legal opinion of outside counsel to
the Company, dated the Closing Date, addressed to Purchaser, substantially in
the form attached as Exhibit B hereto.
(f) All of the Assumed Contracts and Assumed Leases shall (x) be in full
force and effect, (y) be assignable to and assumable by Purchaser without the
consent of any other party thereto, or consent to assignment to and assumption
by Purchaser shall have been obtained with respect thereto, and (z) have had
breaches and defaults thereunder cured, if necessary, in accordance with Section
5.3 hereof.
(g) Purchaser shall have received the audited financial statements of USN
(and the consolidating financial statements for the Business and USN Wireless)
for the fiscal year ended December 31, 1998 (the "1998 Audited Financial
Statements") with no qualification that would prevent the inclusion of such 1998
Audited Financial Statement in any SEC filing of the Purchaser; provided,
however, that the Purchaser shall pay any fees payable in connection with the
preparation of the 1998 Audited Financial Statements.
(h) As of the Billing Date (as defined below), the revenue derived from
Services (determined in accordance with GAAP) of the Sellers for the one-month
period preceding the Billing Date shall have been at least 60% of the revenue
derived from Services (determined in accordance with GAAP) of the Sellers for
the month of January, 1999. For purposes hereof, "Billing Date" shall mean (i)
if the Closing Date shall occur prior to the tenth calendar day of any month,
then the
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tenth calendar day of the month preceding the month that includes the Closing
Date, or (ii) if the Closing Date shall occur on or subsequent to the tenth
calendar day of any month, then the tenth calendar day of the month that
includes the Closing Date.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing Date by mutual written agreement of Purchaser
and the Sellers.
Section 8.2 Termination by Either Purchaser or the Seller. This Agreement
may be terminated at any time prior to the Closing Date by either Purchaser or
the Sellers if (a) a United States federal or state court of competent
jurisdiction or United States federal or state governmental regulatory, or
admini strative agency or commission shall have issued an order, decree, or
ruling or taken any other action permanently restraining, enjoining, or
otherwise prohibiting the consummation of the transactions contemplated by this
Agreement and either (i) thirty (30) days shall have elapsed from the issuance
of such order, decree, or ruling or other action and such order, decree, or
ruling or other action has not been removed or (ii) such order, decree, ruling,
or other action shall have become final and non-appealable, provided that the
party seeking to terminate this Agreement pursuant to this clause shall have
used all reasonable efforts to remove such injunction, order, or decree, (b) the
Closing Date shall not have occurred on or May 31, 1999 provided, however, that
neither party may terminate this Agreement pursuant to this Section 8.2(b) on or
before June 30, 1999 if the conditions to Purchaser's obligations to consummate
the transactions contemplated hereunder have not been satisfied on account of
the failure to receive the Regulatory Approvals; provided, however, that the
right to terminate this Agreement pursuant to this Section 8.2(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of the failure of the Closing Date to have
occurred on or prior to such date, (c) the Board of Directors of the Company has
withdrawn, modified, or changed in a manner adverse to the Purchaser its
approval or recommendation of this Agreement in order to approve and permit the
Sellers to execute a definitive agreement relating to an Overbid or any other
sale or disposition of a material portion of the Business or the Assets or of an
equity interest in a Seller, or (d) the Bankruptcy Court shall have approved the
Sellers' execution of a definitive agreement relating to an Overbid or any other
sale or disposition of a material portion of the Business or the Assets or of an
equity interest in a Seller.
Section 8.3 Termination by Sellers. This Agreement may be terminated at any
time prior to the Closing Date by action of the Board of Directors
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of the Company if there has been a material breach of any of the
representations, warranties, covenants or agreements set forth in this Agreement
on the part of the Purchaser, which breach is not curable or, if curable, is not
cured within thirty (30) days after written notice of such breach is given by
the Company to the Purchaser;
Section 8.4 Termination by the Purchaser. This Agreement may be terminated
at any time prior to the Closing Date by the Purchaser if (a) there has been a
breach by any Seller of any representation or warranty contained in this
Agreement that is qualified as to materiality or a material breach of any
representation and warranty that is not so qualified, which breach is not
curable, or if curable, is not cured within thirty (30) days after notice of
such breach is given by Purchaser to Company; (b) there has been a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of any Seller, which breach is not curable or, if curable, is not cured
within thirty (30) days after written notice of such breach is given by the
Purchaser to Company; (c) the Overbid Procedures Order shall not have been
entered by the Bankruptcy Court in substantially the form contemplated by this
Agreement within fifteen (15) days of the Petition Date; provided, however, that
any rights of Purchaser to terminate this Agreement pursuant to this Section
8.4(c) shall no longer be available upon the entry, on Purchaser's consent, of
the Overbid Procedure Order; (d) the conditions to the Purchaser's obligations
to close under Section 7.3(b) shall not have been satisfied or waived on or
prior to April 23, 1999; or (e) the Bankruptcy Court shall not have granted
initial approval of the transactions contemplated by the DIP Credit Agreement by
February 24, 1999, or any of the parties (other than Purchaser) to the DIP
Credit Agreement shall have failed to make its initial purchase of Notes
thereunder within five days of the date set forth in the DIP Credit Agreement.
Section 8.5 Effect of Termination and Abandonment. In the event of
termination of this Agreement pursuant to this Article VIII, written notice
thereof shall as promptly as practicable be given to the other party to this
Agreement and this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned, without further action by any of the parties hereto.
If this Agreement is terminated as provided herein (a) there shall be no
liability or obligation on the part of the Sellers, the Purchaser, or their
respective officers, directors and affiliates, and all obligations of the
parties shall terminate, except for (i) the obligations of the parties pursuant
to Sections 5.9, 8.5, 8.6, 11.5, 11.6. and 11.10, (ii) that a party that is in
material breach of its representations, warranties, covenants, or agreements set
forth in this Agreement shall be liable for damages occasioned by such breach,
including without limitation any expenses, including the reasonable fees and
expenses of attorneys, accountants and other agents, incurred by the other party
in connection with this Agreement and the transactions contemplated hereby, and
(b) all filings, applications and other submissions made pursuant to the
transactions contemplated by this Agreement shall, to the extent practicable, be
withdrawn from the agency or person to which made.
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Section 8.6 Expense Reimbursement; Termination Fee.
(a) Expense Reimbursement. In the event this Agreement is terminated
pursuant to Section 8.2(c) or (d), or 8.4(a) or (b), Sellers shall reimburse
Purchaser for its actual reasonable out of pocket expenses, not to exceed
$1,000,000, incurred in connection with this Agreement and the transactions
contemplated herein, including without limitation attorneys', accountants' and
other agents' fees and expenses incurred by Purchaser for services in preparing
and negotiating this Agreement, performance of due diligence, participating in
the Chapter 11 Case or otherwise (the "Expense Reimbursement"). This obligation
(x) shall survive any termination of this Agreement, and shall constitute an
administrative expense of the Sellers under sections 503(b) and 507(a)(1) of the
Bankruptcy Code and (y) shall be secured by a second priority lien (junior only
to the liens under the DIP Credit Agreement) on the Assets of the proceeds
thereof. Purchaser shall have an administrative expense claim (which shall be a
super priority administrative expense claim senior to all other administrative
expense claims other than administrative expense claims arising under the DIP
Credit Agreement) in an amount equal to the Expense Reimbursement. Payment of
the Expense Reimbursement will be made by Sellers within ten (10) days of
submission by Purchaser of an itemized statement reflecting such actual
reasonable expenses unless earlier payment is required pursuant to Section
8.6(b).
(b) Termination Fee.
(i) Sellers agree and acknowledge that Purchaser's preparation,
negotiation and execution of the Agreement have resulted from substantial
investment of management time and have required significant commitment of
financial and other resources by Purchaser, and that the preparation,
negotiation and execution have provided value to the Sellers. Consequently,
if a Termination Fee Event (as defined in subsection (ii) below) occurs,
Sellers shall pay $750,000 by wire transfer of immediately available funds
to Purchaser as a Termination Fee and shall also pay the Expense
Reimbursement, in accordance with clause (iii) below; provided that Sellers
shall not be obligated to pay the Termination Fee if (x) prior to the
occurrence of the Termination Fee Event, the Agreement has validly been
terminated pursuant solely to (1) Section 8.1 or 8.3 or (2) by the
Purchaser pursuant to Section 8.2(a) or (b) if at the time of such
termination there is no proposal for an Alternative Transaction pending or
(y) an Alternative Transaction is not consummated.
(ii) A "Termination Fee Event" is the occurrence of any of the
following:
(A) The termination of this Agreement pursuant to Section 8.2(c)
or (d) hereof;
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(B) The execution by any Seller, or any trustee in bankruptcy for
any Seller, of an agreement providing for the sale or disposition of
all or any material portion of the Business or of an equity interest
in a Seller, or any business combination of a Seller, involving any
party other than Purchaser or an affiliate thereof, within eighteen
months of termination of this transaction (an "Alternative
Transaction"); or
(C) The confirmation of any plan of reorganization in the
Bankruptcy Court, or the approval of any agreement or transaction by
the Bankruptcy Court, that provides for any Alternative Transaction
within eighteen months of termination of this transaction.
(iii) Sellers shall pay the Termination Fee and Expense Reimbursement
simultaneously with the closing of any Alternative Transaction (unless with
respect to the Expense Reimbursement, earlier payment is required pursuant
to Section 8.6 (a)). Sellers' obligation to pay the Termination Fee shall
survive termination of this Agreement and shall (x) constitute an
administrative expense (which shall be a superpriority administrative
expense claim senior to all other administrative expense claims other than
administrative expense claims arising under the DIP Credit Agreement) of
the Sellers under sections 503(b) and 507(a)(1) of the Bankruptcy Code and
(y) be secured by a perfected second priority lien (junior only to the
liens under the DIP Credit Agreement) on the Assets and the proceeds
thereof.
ARTICLE IX
INDEMNIFICATION
Section 9.1 Obligation of the Seller to Indemnify. Subject to the
limitations on indemnification contained in this Article IX, from and after the
Closing Date Sellers agree to indemnify, defend and hold harmless the Purchaser
(and its respective shareholders, directors, officers, agents and employees)
(each, an "Indemnitee") from and against all losses, liabilities, damages, costs
or expenses (including, without limitation, reasonable attorneys' fees and
disbursements) (collectively "Losses") based upon, arising out of or otherwise
in respect of (i) any breach of a representation or warranty contained in
Article III, each of which representation and warranty shall be considered
without regard to any materiality or Seller Material Adverse Effect
qualification therein or (ii) any Excluded Liabilities or Excluded Assets.
Notwithstanding the foregoing, the Sellers shall not be liable under clause (i)
of this Section 9.1 for any Losses arising in any discrete claim for
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indemnity (i.e., a claim with respect to a particular item or set of closely
related items) if the amount of such Loss is less than $25,000.
Section 9.2 Notice and Opportunity to Defend.
(a) Promptly after receipt by any person or entity entitled to
indemnification under this Agreement (an "Indemnified Party") of notice of any
demand, claim or circumstances which, or with the lapse of time, would give rise
to a claim or the commencement (or threatened commencement) of any action,
proceeding or investigation (an "Asserted Liability") that will result in a
Loss, the Indemnified Party shall give written notice thereof (the "Claims
Notice") to the Company; provided, however, that the failure to promptly provide
the Claims Notice shall not relieve Sellers of their obligations hereunder
except to the extent they were prejudiced thereby. The Claims Notice shall
describe the Asserted Liability in reasonable detail.
(b) Subject to the limitations set forth in this Section 9.2, the Sellers
may elect to compromise or defend, at their own expense and by their own
counsel, any Asserted Liability. If the Sellers elect to compromise or defend
such Asserted Liability, they shall within 30 days (or sooner, if the nature of
the Asserted Liability so requires) provide the Indemnified Party with the
notice of such defense (the "Defense Notice") and the Indemnified Party shall
cooperate in the compromise of, or defense against, such Asserted Liability;
provided, however, that the Indemnified Party shall have the right to approve
the counsel of the Sellers (the "Defense Counsel"), which approval shall not be
unreasonably withheld or delayed. If the Sellers choose to defend any claim,
action or proceeding, the Indemnified Party shall make available to the Sellers
any books, records or other documents within its control that are necessary or
appropriate for such defense.
(c) Without the prior written consent of the Indemnified Party, which
consent shall not be unreasonably withheld or delayed, the Sellers will not
enter into any settlement of any claim brought by a third party or cease to
defend against such claim.
(d) If an offer is made to settle a claim brought by a third party and
pursuant to or as a result of such offer no injunctive or other equitable relief
and no other obligations of any kind would be imposed against the Indemnified
Party, and the Sellers desire to accept and agree to such offer, the Company
will give written notice to the Indemnified Party to that effect. If the
Indemnified Party fails to consent to such offer within 15 calendar days after
its receipt of such notice, the Indemnified Party may continue to contest or
defend such claim and, in such event, the maximum liability of the Sellers as to
such claim will not exceed the amount of such settlement offer.
(e) If the Company shall fail to give the Defense Notice, Sellers shall be
deemed to have elected not to conduct the defense of the Asserted
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Liability, and in such event the Indemnified Party shall have the right to
conduct such defense in good faith and to compromise and settle the claim. In
each instance when this Article IX shall allow an Indemnified Party the right to
conduct its defense and to compromise and settle a claim, it shall do so only
with the prior consent of the Company, such consent not to be unreasonably
withheld or delayed, and the Sellers will be liable for all reasonable costs,
expenses, settlement amounts or other Losses paid or incurred in connection
therewith. In any event, the Indemnified Party may participate, at its own
expense, in the defense of any Asserted Liability.
Section 9.3 Limitations Regarding Indemnification Obligations.
(a) Subject to Section 9.4 hereof, the Sellers shall indemnify the
Indemnitees for all Losses up to $6,000,000; provided, that, the maximum
aggregate liability of the Sellers shall not exceed $6,000,000.
(b) Notwithstanding the provisions of Section 9.1 hereof, the Sellers shall
not be required to make any indemnification payment for Losses arising under
Section 9.1 unless and until the aggregate amount of all Losses arising under
Section 9.1 exceeds $500,000 (the "Basket Amount"), at which point the Sellers
shall indemnify the Indemnitees for all Losses (including those that are less
than the Basket Amount) up to $6,000,000.
(c) No claim for indemnification for a Loss arising under Section 9.1 may
be brought after expiration of the applicable period set forth in Section 11.1.
If written notice of a claim has been given prior to the expiration of the
applicable survival period set forth in Section 11.1, then the relevant
representations and warranties shall survive solely as to such claim until the
claim has been finally resolved.
Section 9.4 Indemnity Payments. In the event Sellers, or any of them, agree
to or are determined to have any obligation to indemnify any Indemnitee pursuant
to this Article IX, the amount of the Contingent Payment shall automatically be
decreased by the amount of the Loss relating to such obligation, and as a result
of such decrease, Sellers, or any such Seller, as the case may be, shall be
deemed to have satisfied such obligation in full and shall have no further
liability with respect thereto, provided that if as a result of such decrease
the amount of the Contingent Payment would otherwise be zero or less than zero,
then (i) the amount of the Contingent Payment shall be reduced to zero and (ii)
Sellers or any such Seller, as the case may be, shall be deemed to have
satisfied such obligation in full and shall have no further liability with
respect thereto.
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ARTICLE X
DELIVERIES AT CLOSING
Section 10.1 Sellers' Deliveries at Closing. In addition to the other
things required to be done hereby, at the Closing, the Company shall deliver, or
cause to be delivered, to Purchaser the following:
(a) a certificate dated the Closing Date and validly executed on behalf of
each Seller to the effect that the conditions set forth in Section 7.3(a) have
been satisfied;
(b) a legal opinion of outside counsel to the Company, dated the Closing
Date, addressed to Purchaser, in the form attached as Exhibit B hereto;
(c) all documents, certificates and agreements necessary to transfer to
Purchaser good and marketable title to the Assets, free and clear of any and all
Encumbrances thereon, including:
(i) a duly executed Assignment and Assumption Agreement, in customary
form mutually agreeable to the parties;
(ii) assignments of all Assumed Contracts, Intellectual Property and
any other agreements and instruments constituting Assets, dated the Closing
Date, assigning to Purchaser all of Sellers' right, title and interest
therein and thereto, with any required consent endorsed thereon; and
(iii) an assignment of lease, dated as of the Closing Date, with
respect to each Assumed Lease, in form reasonably acceptable to Purchaser,
together with any necessary transfer declarations or other filings (and in
recordable form if required by Purchaser); and
(d) certified copies of all orders of the Bankruptcy Court pertaining to
the Contemplated Transactions, including the 363 Order and the 365 Order, and
evidence of the entry of all such orders on the docket of the Chapter 11 case
and of the absence of any pending appeal or motion for rehearing or
reconsideration.
Section 10.2 Purchaser's Deliveries at Closing. In addition to the other
things required to be done hereby, at the Closing, Purchaser shall deliver, or
cause to be delivered, to the Company the following:
(a) a certificate dated the Closing Date and validly executed on behalf of
Purchaser to the effect that the conditions set forth in Section 7.2(a) have
been satisfied;
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(b) a copy of the resolutions of the Board of Directors of Purchaser, or
similar enabling document, authorizing the execution, delivery and performance
hereof by Purchaser, and a certificate of its secretary or assistant secretary,
dated as of the Closing Date, that such resolutions were duly adopted and are in
full force and effect;
(c) duly executed Warrants; and
(d) a duly executed Assignment and Assumption Agreement, in customary form
mutually agreeable to the parties.
Section 10.3 Required Documents. All documents to be delivered by Sellers
or to be entered into by Sellers and Purchaser necessary to carry out the
transactions contemplated by this Agreement or contemplated by the terms of this
Agreement shall be satisfactory in form and substance to Purchaser and counsel
to Purchaser and all documents to be delivered by Purchaser necessary to carry
out the transactions contemplated by this Agreement or to be entered into by
Sellers and Purchaser necessary to carry out the transactions contemplated by
this Agreement shall be satisfactory in form and substance to the Company and
counsel to the Company.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Survival of Representations, Warranties, and Agreements. The
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive until March 31, 2000.
Section 11.2 Notices. All notices, claims, demands, and other
communications hereunder shall be in writing and shall be deemed given upon (i)
confirmation of receipt of a facsimile transmission, (b) confirmed delivery by a
standard overnight carrier or when delivered by hand, or (c) the expiration of
five (5) Business Days after the day when mailed by registered or certified mail
(postage prepaid, return receipt requested), addressed to the respective parties
at the following addresses (or such other address for a party as shall he
specified by like notice):
(a) If to Purchaser, to:
CoreComm Limited
110 East 59th Street
New York, NY 10022
Telecopy: (212) 906-8489
Attention: Jeffrey G. Wyman, Esq.
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with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Telecopy: (212) 757-3990
Attention: Kenneth M. Schneider, Esq.
(b) If to Seller, to:
USN Communications, Inc.
10 South Riverside Plaza
Suite 2000
Chicago, IL 60606
Telephone: (312) 906-3620
Telecopy: (312) 474-0814
Attention: Mr. J. Thomas Elliott
and to:
USN Communications, Inc.
10 South Riverside Plaza
Suite 2000
Chicago, IL 60606
Telephone: (312) 906-3592
Telecopy: (312) 474-0814
Attention: Thomas A. Monson, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Suite 2100
Chicago, IL 60606
Telephone: (312) 407-0700
Telecopy: (312) 407-0411
Attention: Gary P. Cullen, Esq.
Section 11.3 Descriptive Headings. The 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 11.4 Entire Agreement; Assignment. This Agreement (including the
Exhibits, the Seller Disclosure Letter, and the other documents and instruments
referred to herein) (a) constitutes the entire agreement and supersedes all
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other prior agreements and understandings (other than those contained in the
1999 Letter Agreement, which are hereby incorporated by reference herein) both
written and oral, between the parties, with respect to the subject matter
hereof, including, without limitation, any transaction between the parties
hereto and (b) shall not be assigned by operation of law or otherwise; provided,
however, that (i) the Purchaser may assign its rights and obligations hereunder
to any Subsidiary, but Purchaser shall not be relieved of its obligations
hereunder as a result of such assignment; and (ii) Sellers may assign a security
interest in its rights under this Agreement to any creditor or creditors of
Sellers.
Section 11.5 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to the rules
of conflict of laws of the State of Delaware or any other jurisdiction.
Section 11.6 Expenses. Except as otherwise provided herein, whether or not
the actions contemplated by this Agreement are consummated, all costs and
expenses incurred in connection will this Agreement and the transactions
contemplated thereby shall be paid by the party incurring such expenses.
Section 11.7 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
Section 11.8 Waiver. At any time prior to the Closing Date, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
Section 11.9 Counterparts; Effectiveness. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original but
all of which shall constitute one and the same agreement. This Agreement shall
become effective when each party hereto shall have received counterparts thereof
signed by all the other parties hereto.
Section 11.10 Severability; Validity; Parties in Interest. If any provision
of this Agreement or the application thereof to any person or circumstance is
held invalid or unenforceable, the remainder of this Agreement, and the
application of such provision to other persons or circumstances, shall not be
affected thereby, and to such end, the provisions of this Agreement are agreed
to be severable. Nothing in this Agreement, express or implied, is intended to
confer upon any person not a party to this Agreement any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
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Section 11.11 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any provision of this Agreement
was not performed in accordance with its specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to all
other remedies available at law or in equity.
ARTICLE XII
DEFINITIONS
Section 12.1 Defined Terms. As used herein, the terms below shall have the
following meanings.
"Accountant" has the meaning set forth in Section 2.3(c).
"Acquisition Subsidiary" has the meaning set forth in the Preamble.
"Action" has the meaning set forth in Section 7.1(c).
"Agreement" has the meaning set forth in the Preamble.
"Alternative Transaction" has the meaning set forth in Section
8.6(b)(ii)(B).
"Asserted Liability" has the meaning set forth in Section 9.2(a).
"Assets" has the meaning set forth in Section 1.1.
"Assignment and Assumption Agreement" means a Bill of Sale, Assignment and
Assumption Agreement in such form as may be agreed to by Purchaser and the
Company.
"Assumed Contracts" means (a) those contracts, bids, proposals, purchase
orders, agreements, indentures, notes, bonds, loans, instruments, leases,
mortgages, or other arrangements or agreements listed in Section 1.1(h) of the
Seller Disclosure Letter and (b) any other contract, agreement, understanding,
or arrangement (whether written or oral) entered into by the Seller in the
ordinary course of business after the date hereof, but specifically excluding
the Excluded Contracts.
"Assumed Leases" has the meaning set forth in Section 1.1(o).
"Assumed Liabilities" has the meaning set forth in Section 1.3.
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"Bankruptcy Code" has the meaning set forth in the Recitals.
"Bankruptcy Court" has the meaning set forth in the Recitals.
"Basket Amount" has the meaning set forth in Section 9.3(b).
"Billing Date" has the meaning set forth in Section 7.3(i).
"Business" has the meaning set forth in the Recitals.
"Business Day" means any day that is not a Saturday, Sunday or other day on
which banking institutions in New York, New York are authorized or required by
law or executive order to close.
"Certificates" has the meaning set forth in Section 1.1(i).
"Chapter 11 Case" has the meaning set forth in the Recitals.
"Claims Notice" has the meaning set forth in Section 9.2(a).
"Closing" has the meaning set forth in Section 2.1.
"Closing Date" has the meaning set forth in Section 2.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Communications Licenses" has the meaning set forth in Section 3.10(a).
"Company" has the meaning set forth in the Preamble.
"Company Board Determination" has the meaning set forth in Section 3.20.
"Company Plan Options" has the meaning set forth in Section 6.10.
"Consideration" has the meaning set forth in Section 1.5.
"Contemplated Transactions" has the meaning set forth in the Recitals.
"Contingent Payment" has the meaning set forth in Section 2.3(a).
"Contract" has the meaning set forth in Section 3.17.
"CoreComm" has the meaning set forth in the Preamble.
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"Cure Amounts" has the meaning set forth in Section 1.4.
"Customer Base" means those Persons to which the Sellers provide
telecommunications service.
"Defense Counsel" has the meaning set forth in Section 9.2(b).
"Defense Notice" has the meaning set forth in Section 9.2(b).
"Designated Purchaser Representatives" shall have the meaning set forth in
Section 5.4.
"DIP Credit Agreement" means the credit agreement and related documentation
set forth as Exhibit C.
"Effective Time of Employment" has the meaning set forth in Section 6.5(b).
"Employees" means, collectively, any employee or former employee employed
or formerly employed by any Seller in the operation of the Business or the
beneficiaries or dependents of any such employee or former employee.
"Encumbrances" has the meaning set forth in Section 1.1.
"Environmental Laws" has the meaning set forth in Section 3.12.
"ERISA" has the meaning set forth in Section 3.13(a).
"ERISA Affiliate" has the meaning set forth in Section 3.13(a).
"Estimated Ohio Revenues Certificate" has the meaning set forth in Section
1.6.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" has the meaning set forth in Section 1.2.
"Excluded Contracts" has the meaning set forth in Section 1.2.
"Excluded Leases" has the meaning set forth in Section 1.2.
"Excluded Liabilities" has the meaning set forth in Section 1.4.
"Excluded Subsidiaries" has the meaning set forth in Section 1.2.
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"Expense Reimbursement" has the meaning set forth in Section 8.6.
"FCC Applications" has the meaning set forth in Section 5.8(a).
"FCC Approvals" has the meaning set forth in Section 7.3(e).
"FCC Licenses" has the meaning set forth in Section 3.10(a).
"FICA" has the meaning set forth in Section 6.9.
"$50 Warrant" has the meaning set forth in Section 1.5.
"Final Determination" has the meaning set forth in Section 2.3(c).
"Final Ohio Determination" has the meaning set forth in Section
1.6(c)(iii).
"Final Order" has the meaning set forth in Section 7.3(e).
"FUTA" has the meaning set forth in Section 6.9.
"GAAP" has the meaning set forth in Section 3.5.
"Good Faith Operation of the Business" has the meaning set forth in Section
2.3(d).
"Governmental Requirements" has the meaning set forth in Section 3.3.
"HSR Act" has the meaning set forth in Section 3.3.
"Inactive Employee" means an employee who is not actively at work due to
approved leave of absence, short-term disability leave or military leave.
"Indemnified Party" has the meaning set forth in Section 9.2(a).
"Indemnitee" has the meaning set forth in Section 9.1.
"Initial Cash Consideration" has the meaning set forth in Section 1.5.
"Intellectual Property" means all United States (a) patents and patent
applications (including reissues, divisions, continuations-in-part and
extensions thereof), invention disclosures, inventions, and improvements
thereto, (b) trademarks, trade names, service marks, trade dress and logos and
registrations and applications for registration thereof, (c) copyrights and
registrations thereof and (d) licenses of any of the foregoing.
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"Legal Proceeding" means any judicial, administrative, regulatory or
arbitral proceeding, investigation or inquiry or administrative charge or
complaint pending at law or in equity before any governmental or regulatory body
or authority.
"Losses" has the meaning set forth in Section 9.1.
"Material Decision" has the meaning set forth in Section 5.4.
"Net Closing Cash Consideration" has the meaning set forth in Section 1.5.
"1998 Audited Financial Statements" has the meaning set forth in Section
7.3(h).
"1998 Letter Agreement" has the meaning set forth in Section 1.3(c).
"1999 Letter Agreement" has the meaning set forth in Section 5.2.
"Objection Notice" has the meaning set forth in Section 2.3(c).
"Offer Employee" has the meaning set forth in Section 6.5(b).
"Ohio Accountant" has the meaning set forth in Section 1.6(c).
"Ohio Purchaser Objection" has the meaning set forth in Section 1.6(c).
"Ohio Revenue" has the meaning set forth in Section 1.6.
"Other State Consideration" has the meaning set forth in Section 1.5.
"Overbid Procedures Order" has the meaning set forth in Section 5.5.
"Overbids" has the meaning set forth in Section 5.5(c).
"Permitted Encumbrances" has the meaning set forth in Section 1.1.
"Person" means any natural person, firm, partnership, association,
corporation, Seller, trust, business trust or other entity.
"Petition Date" means the date on which the Petitions are filed with the
Bankruptcy Court.
"Petitions" has the meaning set forth in the Recitals.
"Pre-Closing Cure Amounts" has the meaning set forth in Section 1.4.
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"Prior Service" has the meaning set forth in Section 6.6(b).
"Purchaser" has the meaning set forth in the Preamble.
"Purchaser Disclosure Letter" has the meaning set forth in Article IV.
"Purchaser Material Adverse Effect" has the meaning set forth in Section
4.3.
"Purchaser Objection" has the meaning set forth in Section 1.6.
"Regulatory Approvals" has the meaning set forth in Section 7.3(e).
"Revenue Certificate" has the meaning set forth in Section 2.3(a).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Affiliate" has the meaning set forth in Section 3.13(a).
"Seller Disclosure Letter" has the meaning set forth in Article III.
"Seller Material Adverse Effect" means any events, conditions, or matters
in respect of any Seller, the Assets, the Business, and the Assumed Liabilities
(collectively, the "Acquired Businesses"), other than the filing of the
Petitions, that in the aggregate taking into account all events, conditions or
matters that impact the Acquired Businesses (whether or not in connection with
the same or any similar representation, warranty or matter) result in or would
reasonably be expected to result in (i) a material adverse effect on the
properties, results of operations or condition (financial or otherwise) of the
Business taken as a whole or (ii) a material adverse effect on the ability of
the Sellers, taken as a whole, to perform their obligations hereunder.
"Seller Permits" means all permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations, consents, and
approvals necessary to conduct the Sellers' businesses as presently conducted,
except for those the absence of which, alone or in the aggregate, do not have a
Seller Material Adverse Effect.
"Seller Plan" has the meaning set forth in Section 3.13(a).
"Seller Plans" has the meaning set forth in Section 3.13(a).
"Seller Representatives" has the meaning set forth in Section 6.2(b).
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"Sellers" has the meaning set forth in the Preamble.
"Shares" has the meaning set forth in Section 1.5.
"Software" has the meaning set forth in Section 3.18(a)(v).
"State Approvals" has the meaning set forth in Section 7.3(e).
"State Licenses" has the meaning set forth in Section 3.10(a).
"State PUCs" has the meaning set forth in Section 3.10(a).
"State PUC Applications" has the meaning set forth in Section 5.8(b).
"Subsidiary" shall mean any subsidiary of the Purchaser.
"Systems" has the meaning set forth in Section 3.18(g).
"Tax" means all federal, state, local, and foreign taxes, and other
assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto.
"Tax Returns" means all federal, state, local, and foreign tax returns,
declarations, statements, reports, schedules, forms, and information returns and
any amended Tax Returns relating to Taxes.
"Technology" has the meaning set forth in Section 3.18(a)(iv).
"Termination Fee" has the meaning set forth in Section 8.6.
"Termination Fee Event" has the meaning set forth in Section 8.6(b)(ii).
"$30 Warrant" has the meaning set forth in Section 1.5.
"363 Hearing" has the meaning set forth in Section 5.5(c)(iii).
"363 Order" means an order of the Bankruptcy Court, in form and substance
reasonably satisfactory to the Purchaser and the Seller, approving the sale of
the Business, including all Assets and the assignment of all Assumed Contracts
and Assumed Leases except Excluded Contracts and other Excluded Assets, by
Seller to Purchaser under this Agreement pursuant to sections 105 and 363 of the
Bankruptcy Code, in each case free and clear of any Encumbrances except as
specifically set forth in this Agreement as an Assumed Liability, and finding
that Purchaser is a good faith
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purchaser including for purposes of Section 363(m) of the Bankruptcy Code, in
substantially the form of Exhibit E.
"365 Order" means an order or orders of the Bankruptcy Court (which may be
included in the 363 Order), in form and substance reasonably satisfactory to the
Purchaser and the Seller, approving the assumption and assignment of all Assumed
Contracts and Assumed Leases by the Seller pursuant to section 365 of the
Bankruptcy Code. The 365 Order shall provide that all defaults of Seller under
the Assumed Contracts arising or accruing prior to the date of the 365 Order
(without giving effect to any acceleration clauses or any default provisions in
such contracts of a kind specified in section 365(b)(2) of the Bankruptcy Code)
have been cured or will be promptly cured by Seller such that Purchaser shall
have no liability or obligation with respect to any default or obligation
arising or accruing prior to the date of the 365 Order, except as may otherwise
be specifically agreed as set forth in this Agreement; and that the Assumed
Contracts and Assumed Leases (other than Excluded Contracts) will be transferred
to, and remain in full force and effect for the benefit of the Purchaser,
notwithstanding any provision in such Assumed Contracts except Excluded
Contracts and other Excluded Assets or in applicable law (including those
described in sections 365(b)(2) and (f) of the Bankruptcy Code) that prohibits,
restricts, or limits in any way such assignment or transfer.
"Top Customers" has the meaning set forth in Section 3.19.
"Total Ohio Consideration" has the meaning set forth in Section 1.6.
"Trade Receivables" has the meaning set forth in Section 1.1(b).
"Transfer Taxes" has the meaning set forth in Section 5.13.
"Transitioned Employee" has the meaning set forth in Section 6.5(b).
"USN" has the meaning set forth in the Preamble.
"USN Audited Financial Statements" has the meaning set forth in Section
3.5.
"USN 1997 10-K" has the meaning set forth in Section 3.5.
"USN SEC Documents" has the meaning set forth in Section 3.5.
"USN Unaudited Financial Statements" has the meaning set forth in Section
3.5.
"USN Wireless" has the meaning set forth in the Recitals.
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"Warrants" has the meaning set forth in Section 1.5.
"Year 2000 Compliant" has the meaning set forth in Section 3.18(g).
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IN WITNESS WHEREOF, the Sellers and the Purchaser have caused this
Agreement to be executed on their behalf by their officers thereunto duly
authorized, as of the date first above written.
CORECOMM LIMITED
By: /s/ George S. Blumenthal
--------------------------------
Name: George S. Blumenthal
Title: Chairman
USN COMMUNICATIONS, INC.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Senior Vice President,
General Counsel and
Secretary
USN NETWORK CORPORATION.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Vice President
USN COMMUNICATIONS WEST, INC.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Vice President
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USN COMMUNICATIONS MIDWEST, INC.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Vice President
USN COMMUNICATIONS NORTHEAST, INC.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Vice President
USN COMMUNICATIONS ATLANTIC, INC.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Vice President
USN SOLUTIONS, INC.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Vice President
USN COMMUNICATIONS SOUTHWEST, INC.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Vice President
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USN COMMUNICATIONS MAINE, INC.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Vice President
USN COMMUNICATIONS VIRGINIA, INC.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Vice President
QUEST UNITED, INC.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Vice President
USN COMMUNICATIONS LONG
DISTANCE, INC.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Vice President
FONENET/OHIO, INC.
By: /s/ Thomas A. Monson
--------------------------------
Name: Thomas A. Monson
Title: Vice President
65
EXHIBIT 99.4
FOR IMMEDIATE RELEASE
CORECOMM ANNOUNCES DEFINITIVE AGREEMENT TO ACQUIRE
CERTAIN ASSETS OF USN COMMUNICATIONS, INC.
New York, New York (February 19, 1999) - CoreComm Limited (NASDAQ: COMMF)
announced today that it had entered into a definitive agreement to acquire
certain assets of USN Communications, Inc. CoreComm will be acquiring
substantially all of USN's local exchange telecommunications resale business,
which operates principally in Illinois, Ohio, Michigan, Massachusetts and New
York, but will not be acquiring USN's wireless related assets.
Separately, USN announced that it and several of its subsidiaries had commenced
a voluntary Chapter 11 reorganization case in the United States Bankruptcy
Court, District of Delaware on February 18, 1999.
CoreComm will purchase the assets for a combination of: (1) a cash payment to be
determined at the closing of the transaction, which is expected to be
approximately $27 million, (2) warrants to purchase 250,000 shares of CoreComm
common stock at a price of $30 and 100,000 shares at a price of $50, and (3) a
contingent payment which will be based on revenues from the acquired assets
during the six month period ending March 31, 2000.
Completion of the transaction is conditioned upon approval by the Bankruptcy
Court presiding over USN's Chapter 11 case, required regulatory approvals and
USN maintaining an annualized rate of revenue of approximately $55 million,
among other matters. Subject to Bankruptcy Court approval, CoreComm will
participate in debtor-in-possession financing of USN on a senior secured basis,
and will be monitoring USN's progress during the reorganization proceedings.
CoreComm also announced earlier this week its Smart LEC network delivery
strategy as well as the acquisition of Megsinet Inc., a fast-growing national
Internet network and regional telecommunications provider.
CoreComm Limited was formed in order to succeed to the businesses and assets
that were operated by OCOM Corporation in the state of Ohio and as an
appropriate vehicle to pursue new telecommunications opportunities. The Company
was formerly a subsidiary of what is now Cellular Communications of Puerto Rico,
Inc. CoreComm currently offers local and long distance telephony services to
business and residential customers, as well as Internet services and wireless
telephony services.
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For further information contact: Michael A. Peterson, Director - Corporate
Development, Kathy Makrakis, Director - Investor Relations or Jeffrey G. Wyman,
Assistant General Counsel at (212) 906-8457.
