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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-24521
CORECOMM LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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BERMUDA 13-4068932
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
CEDAR HOUSE SECRETARY CORECOMM LIMITED
41 CEDAR AVENUE 110 EAST 59TH STREET
HAMILTON, HM 12, BERMUDA NEW YORK, NY 10022
(441) 295-2244 (212) 906-8485
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, INCLUDING AREA CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
(TITLE OF CLASS)
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the Registrant's common stock held by
non-affiliates at March 23, 2000, valued in accordance with the Nasdaq Stock
Market's National Market closing sale price for the Registrant's common stock,
was approximately $1,572,478,000.
Number of shares of Common Stock outstanding as at March 23, 2000:
39,297,458
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF 10-K IN WHICH
INCORPORATED
Definitive proxy statement for the 2000 Annual Meeting
of the Stockholders of CoreComm Limited Part III
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This Annual Report on Form 10-K for the year ended December 31, 1999, at
the time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Section 13, 14 and 15(d) of the
Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities after the date of such filing pursuant to any Registration statement
or Prospectus filed pursuant to the Securities Act of 1933 which incorporated by
reference this Annual Report.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995:
Certain statements contained herein constitute "forward-looking statements"
as that term is defined under the Private Securities Litigation Reform Act of
1995. When used herein, the words, "believe," "anticipate," "should," "intend,"
"plan," "will," "expects," "estimates," "projects," "positioned," "strategy,"
and similar expressions identify such forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Registrant, or industry results, to be materially different from those
contemplated or projected, forecasted, estimated or budgeted, whether expressed
or implied, by such forward-looking statements. Such factors include, among
others, the following: general economic and business conditions, industry
trends, the Registrant's ability to continue to design and build its network,
install facilities, obtain and maintain any required government licenses or
approvals and finance construction and development, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions, as well as
assumptions about customer acceptance, churn rates, overall market penetration
and competition from providers of alternative services, the impact of new
business opportunities requiring significant up-front investment, Year 2000
readiness and availability, terms and deployment of capital.
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TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS 2
ITEM 2. PROPERTY 29
ITEM 3. LEGAL PROCEEDINGS 29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS 29
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS 30
ITEM 6. SELECTED FINANCIAL DATA 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 37
PART III
ITEMS 10, 11, 12 AND 13 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K 37
EXHIBIT INDEX 38
SIGNATURES 39
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
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PART I
ITEM 1. BUSINESS
INTRODUCTION
We are a holding company whose main asset is our wholly-owned subsidiary,
CoreComm, Inc. We intend to pursue other opportunities (in addition to those
through CoreComm, Inc.) in the telecommunications industry as they arise.
We are an innovative communications company that provides integrated
telephone, Internet and data services to business and residential customers in
targeted markets throughout the United States. We are exploiting the convergence
of telecommunications and information services through our "Smart LEC(SM)"
network strategy. Our Smart LEC (Local Exchange Carrier) network strategy
involves the ownership of switches and the leasing of the unbundled local loop
combined with the provisioning of an IP-based, national network. This
configuration of local and national owned and leased facilities allows us to
deliver a wide range of communications services over a network architecture
which we design to be capital efficient and primarily requires success-based
incremental capital. Our goal is to expand our facilities, geography and
services to become a leading switch-based communications provider in selected
major markets across the United States.
We currently offer local and long distance telephone, Internet access and
high-speed data services to business and residential customers located
principally in the following states: Ohio, Illinois, Michigan, New York and
Massachusetts. As of December 31, 1999, we had more than 100,000 business and
residential local telephony access lines in service and approximately 95,000
Internet customers. We currently operate an asynchronous transport mode (ATM)
network, which connects approximately 90 cities using approximately 50,000 route
miles of leased broadband circuits. This network will allow us to take advantage
of economies of scale in the delivery of voice, video and data. We have been
developing our multi-service offerings since 1996 and have recently expanded our
products to include high speed services utilizing Digital Subscriber Line (DSL)
technology. With DSL, a single copper loop can be used to deliver telephony and
high speed data services simultaneously. We are currently in various stages of
constructing our Smart LEC network in six of the largest markets in the U.S.,
which represent approximately 18 million access lines.
Management's approach to its network, back office and customer acquisition
will be critical to our success, as well as the following key components of our
strategy:
o target large, underserved segments in concentrated metropolitan areas,
addressing the underlying demand for consumer choice in traditional
telephony as well as growing demand for high-speed data services;
o capture multiple revenue streams through offering customers bundled
service offerings, differentiated from other providers;
o deliver "Internet Centric" product offerings and support to our
customers;
o leverage proven management talent; and
o utilize Smart LEC strategy to maximize speed to market, minimize
investment risk and increase returns on capital.
Business Strategy Overview
A core part of our business strategy is to offer bundled communications
services, including local and long distance telephony services, Internet access
and high speed data services, all with a single bill. We believe that an
integrated telephony and Internet strategy utilizing DSL technology will be
particularly appealing to our targeted customer base and will significantly
enhance our ability to attract, retain and gain additional revenues from our
subscribers.
Our service offerings are based on the following customer proposition:
"Customers buy what they need and pay for what they get." We combine and price
our products to give the customer increased flexibility, choice, and "value for
money," while also enhancing convenience and simplicity. With this strategy, we
believe that we can capture a larger share of our customers' communications
expenditures and increase customer retention. In addition, we are currently
investigating ways to add video services, including multichannel television, as
a part of our bundled offerings. Our bundling of services is differentiated from
other incumbent operators because we face fewer regulatory requirements, and can
often be differentiated from other operators because we are not constrained by
the technical limits or cost structure of a less advanced or less capital
efficient network architecture. We believe that our DSL proposition is
especially important as we compete against data service providers utilizing
cable modems, who have difficulty guaranteeing a direct correlation between
price paid and speed of access received.
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The Internet is a key management tool in the marketing, provisioning and
billing of our services, as well as in the ongoing support of our customers. We
also use the Internet as a sales tool by attracting customers through our web
site, www.core.com. We are actively developing and incorporating systems to
deliver "Internet Centric" operational support systems which are planned to add
functionality in the areas of electronic billing, web-based customer care and
e-commerce and e-services. We use the Internet as an efficient means of
communication with our business and residential customers, providing on-line
sign-up and self-provisioning of services. We believe that using the Internet to
communicate with the customer will be not only convenient for the customer, but
will also increase our operating efficiency. We believe that by encouraging the
self-provisioning of communications products, especially in the broader
residential market, we will particularly attract the most data-intensive and
higher margin customers at lower customer acquisition and operating costs.
We intend to focus on both residential and small to medium-sized business
customers, including the Small Office/Home Office (SOHO) market, located in
major metropolitan areas in the United States. These segments contain many
communications-intensive customers that we believe are often underserved by both
existing incumbent carriers and new entrants. We seek to attract customers in
these segments by offering innovative services, superior customer service and
overall value. By targeting both of these sectors, we expand our potential
revenue base, leverage our marketing costs over a greater number of potential
customers and increase network utilization with more subscribers. We believe
that marketing and provisioning through the Internet will allow us to deploy our
strategy more rapidly than we could with only a direct sales force.
Continuity of Management
Our management has extensive experience in developing and marketing bundled
communications services, building proprietary back office systems to support
residential and business customers, and designing and constructing large
integrated communications networks. Our management team's accomplishments in the
telecommunications industry span nearly 20 years. There are several members of
this team that have worked together for a decade or more:
o Our President and Chief Executive Officer, Barclay Knapp, was a member
of the original management team at Cellular Communications, Inc. (CCI),
which was an original applicant for cellular licenses in the United
States in 1982. Mr. Knapp is also the President and CEO of NTL
Incorporated.
o Our Chairman, George Blumenthal, was a member of the original
management team of Cellular Communications, Inc. Mr.
Blumenthal also serves as the Chairman of NTL.
o Our Chief Operating Officer, Patty Flynt, joined Cellular
Communications, Inc. in 1989, where she was the director of its
Management Information Services division. Ms. Flynt also served as the
MIS director at NTL.
In the key areas of our operations, our management includes individuals who
have worked with CCI, NTL and their historical affiliates for many years and
have significant telecommunications industry experience. Below is a partial list
of several of those individuals and their area of expertise:
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PREVIOUS HISTORICAL
NAME OPERATIONAL AREA AFFILIATES YEAR JOINED
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Thomas S. DellaRocco..... Networks CCI, NTL 1984
Stefan Eckert............ Sales CCI 1985
Beth K. Fisher........... Customer Operations CCI 1985
Kimberly K. Liston....... MIS CCI, NTL 1990
Donald B. Miller......... Marketing CCI 1986
Paul J. Nelson........... Sales CCI 1991
Chris Y. Skudder......... Customer Operations CCI, NTL 1992
Richard J. Lubasch....... General Counsel CCI, NTL 1986
Gregg N. Gorelick........ Financial Controller CCI, NTL 1986
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The continuity of this team is due to their success in working together
throughout the corporate lineage that began with Cellular Communications, Inc.
in 1981. In addition to these individuals, there are other members of our
management team and staff who were part of CCI, or part of a later joint venture
between CCI and AirTouch Communications, Inc. that was formed in 1991. Several
of our directors have also been involved with each of these companies. CCI was
acquired by AirTouch Communications, Inc. in 1996.
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Out of Cellular Communications, Inc., several publicly traded companies
were spun-off. Our management team developed these other communications
companies:
o NTL Incorporated, a telecommunications, cable television and Internet
provider which operates principally in the United Kingdom and
Continental Europe. Giving effect to recently announced acquisition
agreements, NTL's franchise areas cover approximately 12 million homes,
representing approximately 50% of the homes and an even larger share of
the businesses in the United Kingdom. NTL has already achieved an
industry leading customer penetration rate of 48% in the original areas
it built-out and marketed.
o Cellular Communications of Puerto Rico, Inc. (CCPR), which operated the
dominant cellular business in Puerto Rico and the U.S. Virgin Islands,
and from which CoreComm Limited was spun-off in 1998.
o Cellular Communications International, Inc. (CCIL), which was a
co-founder of Ominitel Pronto Italia, S.p.A., which owns the second
cellular license in Italy.
The core management team remained intact and guided the above companies to
substantial success, culminating in the acquisitions of each of CCI, CCIL and
CCPR by major telecommunications companies.
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COMPANY TRANSACTION
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Cellular Communications, Inc. Acquired by AirTouch for $2.5 billion (August
1996)
Cellular Communications International, Inc. Acquired by Mannesman and Olivetti for $1.8
billion (March 1999)
Cellular Communications of Puerto Rico, Inc. Acquired by SBC Communications, Inc. for $814
million (August 1999)
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Communications Industry
We are participating in the large and rapidly changing U.S. wireline
telecommunications industry. We believe that the wireline telecommunications
industry benefits from positive price elasticity, as well as growing,
non-cyclical demand for services. According to the U.S. Census Bureau, the total
wireline segment of the U.S. telecommunications market was estimated to be
approximately $208 billion in 1998. Approximately 50% of this revenue is derived
from local service and network access. In addition, demand for access to the
Internet and data services is having a significant effect on the U.S.
communications industry, and is expected to continue its rapid growth. Various
estimates project this segment to grow significantly over the next several
years.
As demonstrated on the chart below, as a wireline telecommunications
services provider, CoreComm is operating in the largest of the communications
related industries, which represents significant market opportunities for us:
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INDUSTRY U.S. MARKET SIZE HISTORY
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Wireline Telecommunications $208 billion(1998)(1) 120 years
TV Broadcasting 35 billion(1998)(2) 60 years
Cellular 42 billion(1998)(1) 17 years
Cable & Satellite 34 billion(1998)(2) 50 years
Radio 15 billion(1998)(2) 70 years
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(1) Source: U.S. Census Bureau
(2) Source: Euromonitor International Inc.
The Smart LEC(SM) Overview
Our Smart LEC strategy is designed to allow us to enter communications
markets rapidly and to offer a variety of operating benefits, including:
improved operating margins, enhanced control of the customer experience,
success-based capital expenditures, and higher overall returns on capital. In
addition, we believe that the efficiency and broad reach of this network
strategy, in conjunction with our diversified product offering, enable us to
operate under a business plan which requires only a small share of each of our
target markets for a successful return on investment.
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The Smart LEC network strategy combines the building and owning of key
network facilities with the leasing of other services from the Incumbent Local
Exchange Carriers (ILECs) and other telecommunications carriers under the
following general principles:
We build those parts of the network which we believe:
o significantly improve operating margins;
o are necessary to enhance the services to the customer; and
o are not generally available from other providers.
Conversely, we lease those portions of the network which we believe:
o are disproportionately expensive to build;
o are readily available to be leased economically from other providers;
and
o do not impact our ability to interact with the customer.
We have deployed our Smart LEC facilities in Columbus, Ohio, Cleveland, Ohio
and Chicago, Illinois and are currently developing three additional markets:
Detroit, Michigan, New York, New York and Boston, Massachusetts. These six
markets comprise approximately 18 million total access lines. In connection with
these markets, we are in the process of establishing collocation facilities in
approximately 133 ILEC central offices. We have also identified approximately 30
additional markets where we intend to deploy our Smart LEC network in 2000-2002.
We currently deliver our Internet services over our broadband ATM network, which
has approximately 125 points of presence and approximately 50,000 route miles of
leased broadband circuits throughout the United States.
Based upon our historical experience we are developing sophisticated
proprietary integrated systems and procedures that support all aspects of our
business, including customer provisioning systems, billing systems, and customer
care and collections support systems. Additionally, our systems support
electronic bonding with the ILEC in each of our markets. We believe that an
effective back office is essential to efficiently serving our customers and
achieving successful overall customer satisfaction and retention.
BUSINESS STRATEGY
Our objective is to become a leading provider of integrated communications
services in our target markets. We believe that we will successfully compete
with the incumbent operators and achieve attractive returns on capital by
pursuing the following key strategies:
Provide Services to both Business and Residential Customers. We focus on
marketing and packaging our services with product offerings that are tailored to
small-to-medium-sized business customers and communications-intensive
residential markets. Because our networks are capital efficient and because we
lease the "last mile" to the customer, we believe that our business model
uniquely allows us to serve profitably both the business and residential
communities. We believe that each segment offers certain advantages: the
small-to-medium-sized business market offers high volume and revenue per
customer, as well as increased geographical concentration of users; the
residential market offers a large, undeserved, growing market with significantly
less competition from other providers. For example, in Ohio we are one of only a
few competitive providers that market local telecommunications services to the
residential market. In addition, targeting both sectors allows us to leverage
the fixed cost aspects of our network and operations.
Offer Bundled Services. We provide our customers with "one-stop shopping,"
offering local and long distance telephony, Internet and data services. Our
services are packaged and priced in bundles which give the customer increased
flexibility, choice, and "value for money". We emphasize offerings which are
easy to value by the consumer, and allow them to "buy what they need and pay for
what they get." We typically offer a platform of basic services and then create
ways for customers to add additional services easily and conveniently according
to customer preferences. Our current service offerings include: local dial tone
and local calling; enhanced telephony features, such as call waiting; long
distance calling services; dial-up and dedicated Internet access; and data
services. Our integrated offerings enhance convenience by giving the customer
one point of contact for all of these services, providing the services on a
single bill and simplifying the decision-making process. In addition to
attracting customers, we believe this strategy also improves our profitability
by increasing our average revenue per customer with additional higher margin
services, reducing customer acquisition and other operating costs, and improving
customer retention.
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Own and Operate Capital Efficient Networks. Our strategy is to provide our
full range of communications services over our capital efficient, switch-based
network infrastructure which combines the building of key network facilities
with the leasing of other elements from the ILEC or other telecommunications
carriers. We believe that our network strategy offers a variety of benefits
including: attractive operating margins, control of the customer experience,
greater speed to market, broad geographic reach, ability to serve both
businesses and residential customers, success-based capital expenditures, and
higher overall returns on capital.
"Internet Centric" Strategy. We use the Internet as a key tool of our
business strategy. First, Internet access is one of our core service offerings.
We believe that demand for access to the Internet will continue to grow rapidly
in both the business and residential markets, and that our bundled Internet and
telephony product offerings will be attractive to potential customers. Second,
we currently use our www.core.com web site as a sales tool where customers can
sign up for service, to increase awareness about CoreComm and our products and
services, and to access the large and growing number of users of the World Wide
Web. We also intend to use the Internet to be able to efficiently communicate
with virtually every CoreComm customer. We will provide on-line sign-up, feature
selection, billing, moves/adds/changes, and customer care. We currently offer
customers the ability to sign up online and the option to receive their bills
via e-mail, and are in the process of expanding our systems for these additional
on-line services. We believe that communicating with the customer electronically
will significantly increase our operating efficiency by reducing our sales
costs, customer service costs and billing costs, as well as our bad debt
expense. We also believe that this strategy will provide added convenience for
the customer, which will further differentiate us from our competitors.
Effective Marketing Over Wide Areas. We develop and utilize effective and
efficient marketing techniques to attract customers. We believe that our network
will allow us to leverage our fixed cost infrastructure to reach wide geographic
areas within our target markets. In addition, the ability to resell ILEC
services expands our overall potential service area even further. Our ability to
offer targeted, customer-convenient services over wide areas enables us to
utilize mass marketing strategies and other efficient methods of communicating
our offerings to our potential customers. We believe that these initiatives will
increase the awareness of the CoreComm brand and attract new customers in our
target markets.
Distinguish CoreComm From Its Competitors. Our strategies seek to
differentiate us from other communications providers. To satisfy customer needs,
we offer an integrated bundle of services that is not typically offered by a
single provider, and package these services into product offerings that are
unique in their emphasis on simplicity, choice and flexibility. We can
differentiate our service offerings in part because we are less constrained by
regulatory requirements than ILECs, and not as limited by less capital efficient
networks as other operators. In addition, we offer customer service and support
which is superior to what customers have often experienced in the past with
their ILEC or other providers. We have developed our own sophisticated back
office systems to enable us to do so effectively and efficiently. We believe
that our on-line billing and customer service will further differentiate the way
we interact with customers. Through these and other factors, we try to create an
image for CoreComm that emphasizes us as an important member of the community,
offering our services over broad areas, to both business and residential
customers, with superior reliability and service. We believe differentiating
CoreComm in this manner will help us attract and retain our customers.
Leverage Experience of Proven Management. Our management team has had
significant experience in developing several successful communications companies
in the U.S., the United Kingdom and other countries. We believe that our
management's experience will enhance our ability to execute our business plan,
and will contribute to our overall operational success and results. Our
management has designed attractive, bundled communications services and product
offerings. In addition, our management has previously developed its own internal
systems for billing, MIS and customer care. We believe that a high quality back
office is critical for effectively and efficiently serving the customer. Many
members of our management team have worked together for 10 to 15 years. Our
senior management founded and operates NTL Incorporated, a large
telecommunications, cable television and Internet provider which operates
principally in the United Kingdom and Continental Europe. At NTL, management has
had experience competing against incumbent operators by offering business and
residential customers bundled packages of integrated communications services,
including telephony, cable TV and Internet access. NTL has developed creative
marketing and packaging strategies which have delivered industry leading
customer penetration rates (48% versus the industry average of 32%) and churn
rates which are less than half the industry average. Our senior management has
also been involved with other communications ventures, including Cellular
Communications, Inc., Cellular Communications of Puerto Rico, Inc., and Cellular
Communications International, Inc. which operated cellular businesses in Ohio
and Michigan, Puerto Rico, and Italy, respectively. In these ventures, our
management has typically achieved successful operating results, developed
significant experience competing against incumbent operators, built and
maintained sophisticated communications networks and back office support
systems, and gained recognition in the communications industry and the capital
markets. CoreComm represents an effort to capitalize on this history of
experience and operational success to exploit the significant communications
opportunities in the U.S.
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Expand Through Strategic Acquisitions. We have expanded and grown our
operations through strategic acquisitions. We look for acquisitions that enhance
our ability to execute our business strategy, including adding complementary
network and facilities, increasing revenues, and gaining management talent. To
this end, in 1999 we completed the acquisitions of MegsINet Inc. ("MegsINet"), a
Chicago based Internet service provider, and the assets of USN Communications,
Inc. ("USN"), a CLEC in the midwest and northeast providing service to business
customers. In addition, we recently announced that we have entered into
definitive agreements to acquire ATX Telecommunications, Inc. ("ATX"), a "smart
build" CLEC and integrated communications provider serving the mid-Atlantic
states, and Voyager.net, Inc. ("Voyager.net"), the largest independent full
service Internet communications company in the midwest and Great Lakes region.
We intend to continue to pursue acquisition opportunities which would accelerate
the growth and success of our operations.
THE SMART LEC(SM) NETWORK
The Smart LEC strategy allows us to implement our own switch-based
telecommunications network without the significant additional expense, time
commitment and general financial risk of building our own complete local loops
and transmission facilities. We believe this strategy will improve our overall
return on capital and lower the level of risk associated with the execution of
our business plan, based on the following general advantages:
o reduced capital expenditures associated with leasing rather than
building complete local loop and transport facilities;
o greater certainty of return from success-based capital spending;
o increased network utilization as a result of the access to multiple
revenue streams and the ability to increase leased capacity
incrementally; and
o lower overall market penetration requirements as a result of reduced
network costs.
Advantages of the Smart LEC network
We believe that this network strategy offers a variety of specific
benefits including:
Lower Overall Cost -- We believe that the Smart LEC network can be
deployed at a much lower cost than building conventional networks. The cost
of conventional networks includes the cost of all of the network facilities
included in the Smart LEC build, plus the construction of conduit, transport
capacity and associated infrastructure to connect network access points,
switch facilities and customers. The deployment of these transmission route
components involves significant expense, and their elimination under our
strategy considerably decreases our capital expenditure requirements.
Whereas the construction of full network facilities has been estimated to
cost between $1,000 to $3,000 per line, depending on the specifications of
the network, we estimate that our Smart LEC network will cost less than $500
per line, while still providing comparable basic telephony services and
additional advanced services.
Lower Required Customer Penetration -- Due to the reduced cost of
building the Smart LEC network, our business model requires a lower level of
customer penetration to be successful as compared to a full-facilities
network. Because there is a reduced amount of up-front investment, we
believe that we can gain profitability and a sufficient return on capital
with a relatively small percentage of market share. This advantage not only
lowers our exposure to risk, but also gives us the flexibility to design our
offerings to target a specific subscriber base of communications-intensive
users without the requirement of necessarily attracting a large portion of
the market. The ability to serve both business and residential customers
also increases our potential overall market.
Success-based Capital Expenditures -- An additional benefit of our Smart
LEC network is the "success-based" cost structure of the capital
expenditures. Conventional full-facilities networks typically require the
network construction to be fully completed in advance of obtaining
customers, generating high initial capital expenditures. Under our Smart LEC
strategy, certain switch and access facilities are installed ahead of time,
but the majority of capital is invested to increase the capacity of the
network based on our success in attracting customers. We can therefore enter
a market with a significantly lower up-front investment, and add facilities
and leased capacity over time as we grow our customer base. A significant
portion of our network expenses can therefore be incurred later and with
more certain returns.
Control of the Customer Experience -- We believe that having greater
control over the services that we offer enhances our ability to improve the
overall customer experience. Through the facilities which we install, we
have control over the services provided to customers, including the
operation of features, phone numbers, and line testing and servicing.
Control over the implementation of the products enables us to better manage
the service and to more easily offer custom packages of products and
features. We believe that our delivery and marketing of targeted,
customer-convenient, easy-to-understand packages differentiates us from our
competition.
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Ability to Serve Business and Residential Customers -- Our Smart LEC
network architecture is designed to reach both business and residential
customers. Because we are leasing rather than building the local connection
to the customer, we believe we can economically reach the residential market
despite its lower density relative to the business market. As a result, we
are able to reach and serve the significant consumer segment, which has
typically had significantly fewer competitors than the business segment. In
addition, there are significant synergies which accrue from the ability to
serve both business and residential market segments, including benefits to
our marketing, service operations and network utilization.
Higher Operating Margins -- We believe that deploying key network
infrastructure will enable us to achieve significantly higher gross margins
than the margins obtained under total service resale. Total service resale,
which is the resale of complete services from ILECs without installing owned
facilities, typically generates gross profit margins of approximately
20-25%. Under the Smart LEC strategy, rather than reselling the entire
service, we will be leasing only certain unbundled network elements, such as
local loops and transport. We will use our own facilities for network
interconnection, switching, features, and other network elements. By design,
the facilities which we own and install are those which have a significant
positive impact on our gross margins. By utilizing our own facilities for
certain key portions of the network, we believe that we can increase our
operating margins significantly above the margins which can be achieved with
resale.
Increased Speed to Market -- The Smart LEC strategy will also increase
the speed at which we can enter additional markets. The time needed to
construct a conventional network is extended by factors such as civil
construction, the permit application process, certifications, and network
management. Although constructing the Smart LEC network involves certain
similar procedures, the majority of the installation work takes place in our
own facilities and leased collocations of the ILECs, and significant route
network construction elements are eliminated, which should contribute to an
increased speed to market under our strategy. Whereas conventional networks
typically take between 18 to 24 months to construct, we believe our networks
can generally be installed in a 6 to 12 month time frame.
Access to Wide Geographical Areas -- We believe the cost structure of
the Smart LEC network will enable us to enter target areas which may not be
economical for a full facilities network. When building a conventional
network, density is a critical factor because the distance between the local
switch and customers has a significant impact on build costs. In the Smart
LEC network, although density is still important, it is less critical
because the local loops are already built and are simply leased from ILECs.
The ability to lease certain portions of the network therefore expands the
potential territories that can be economically served by our network. In
addition, we can offer total service resale in areas that are not yet served
by our network, which expands our operating territory even further. Because
ILECs are typically connected to all businesses and residences in its
region, our ability to lease or resell these connections gives us
considerable geographic flexibility and reach within our target markets. We
believe that we will realize several advantages from having the ability to
serve broad geographical areas, including operating synergies, marketing
efficiencies and the enhancement of our overall company image presented to
potential customers.
Network Development and Architecture
Under our Smart LEC strategy, we build those portions of the network that we
believe will significantly increase our gross margins, are necessary to control
the services provided to the customer, and can be deployed rapidly and
efficiently. We lease those portions of the network that are readily available
to be leased economically from other providers. Accordingly, we are building the
Smart LEC network in each target market through a combination of the following
three central elements:
o Installing telephony and data equipment in our target metropolitan
areas, including: Class 5 telephony switches, ATM switches and Internet
point-of-presence equipment in our own facilities, along with telephony
access devices, DSL access equipment, modems and other equipment in
facilities collocated with the ILEC. These devices switch and route
voice and data transmissions across the network.
o Leasing the "last mile" or "local loop" (the portion of the network
extending from the end-office to the customer's premises). This local
connection is leased by us from the ILECs as an "Unbundled Network
Element" as provided under the Telecommunications Act of 1996. These
local loops are used to transport voice and data services, for Internet
access services, as well as for DSL and other high capacity voice and
data applications. For larger customers or concentrated groups of users
(such as multi-dwelling units), we lease circuits with greater
bandwidth for this local connection.
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<PAGE> 11
o Leasing the transport capacity to carry voice and data both regionally
(between our collocated facilities and our regional switch) and
nationally (between our regional switches, our national Internet
points-of-presence, other carriers, and the Internet). We lease these
services from ILECs, Competitive Local Exchange Carriers (CLECs), Inter
Exchange Carriers (IXCs), Competitive Access Providers (CAPs) and other
providers. We use these leased circuits to transport our own voice and
data traffic and deliver it to the most economical point of
interconnection with other carriers. These leased circuits are
interconnected using our national ATM facilities.
As a complement to the network described above, we also resell complete
services from ILECs (total service resale). Although we intend to serve
customers primarily over our own network, resale allows us to expand our target
markets by adding service areas where our facilities are not yet installed. This
enables us to market our services prior to and during the installation of our
network, and then connect customers to our facilities once they are in place.
Resale also allows us to serve customers that may not be within the current
reach of our switch-based network. Although providing service on a resale basis
generates lower gross margins, we believe that there are advantages to offering
comprehensive geographical coverage within our target markets, particularly when
competing with an ILEC.
We believe that the quantity of existing and planned fiber transport
facilities available from other carriers will be sufficient to satisfy our need
for leased transport facilities and permit us to obtain these facilities at
competitive prices for the foreseeable future. Several factors contribute to
this view: there is significant transport capacity in place today and we often
have the ability to choose from multiple providers including the ILECs; the
number of new providers building networks continues to increase; most providers
are consistently increasing their network capacity; and advances in wave
division multiplexing technology have continued to increase the capacity of
existing fiber plant. In addition, the ability to lease transport from the ILECs
gives us broad geographic coverage. As the volume of our traffic grows, however,
in the future it may become economical to build our own transport facilities in
certain markets.
We currently lease transport capacity from multiple carriers across our
regional and national networks, including, among others:
ILECs OTHER CARRIERS
----- --------------
Ameritech ICG
Bell Atlantic IXC
Bell South Level 3
Frontier MCI WorldCom
SBC NEXTLINK
US West Qwest
Nationally, as we construct regional Smart LEC networks, our ATM network
will interconnect these local networks and other points-of-presence across the
U.S. over leased circuits to provide national data, voice and Internet
connectivity.
Network Technologies
Our Smart LEC network is capable of carrying both voice and data
communications using the following technologies:
o Standard Telephony -- the traditional, reliable transmission of voice
over local loop copper wire and regional and national fiber optical
transmission path which, through the use of switches, becomes a
dedicated end-to-end circuit.
o Internet Protocol (IP) -- the structure of data transmitted over the
Internet. Because Internet Protocol involves splitting data into
"packets" which are transmitted independently and reassembled at their
destination, Internet Protocol does not require a dedicated end-to-end
circuit and many different communications messages can be routed
simultaneously over the same transmission facilities, resulting in
greatly improved efficiency. This technology is currently being
developed to be used reliably for voice service.
o Digital Subscriber Line (DSL) -- a transmission technology that allows
for the transport of significant levels of voice and data at high
speeds over conventional, copper phone lines. These higher transmission
rates can be used for high-speed Internet access, to transport multiple
voice lines over a single loop, or for both simultaneously.
o Asynchronous Transfer Mode (ATM) -- a transport protocol that supports
many types of high-speed transmissions including voice, data, video,
audio and imaging. ATM allows for the use of individual circuits for
multiple simultaneous purposes, increasing network efficiency.
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<PAGE> 12
o Digital Loop Carrier (DLC) -- an access technology allowing us to
aggregate and concentrate the voice traffic collected at the
collocation facility to more efficiently transport this traffic to our
switches.
Local and Regional Network Deployment
We have identified six major metropolitan areas as the initial target
markets for the rollout of our regional Smart LEC networks. Our switches in
Columbus and Cleveland are currently active and we have begun provisioning our
residential and business customers that are on our footprint through these two
switches. Our Chicago switch has been installed, and we expect to begin
migrating customers in the second quarter of 2000. In addition, we are currently
constructing our network in three additional markets: Detroit, Michigan; New
York, New York; and Boston, Massachusetts. We expect the networks in these
markets to be installed in 2000. These six markets comprise approximately 18
million total access lines. We are in the process of establishing collocation
facilities in approximately 133 ILEC central offices in these markets. The
significant majority of these are physical collocations, under which we have
space within the central office that is dedicated to our exclusive use.
We have also identified more than 30 additional markets where we intend to
deploy our Smart LEC network in 2000, 2001, and 2002. These markets are in
several states, including: Pennsylvania, Maryland, Connecticut, Indiana,
Wisconsin, Missouri, Florida, Texas and California, among others. The buildout
schedule, as well as the final selection of our markets, will depend on a number
of factors, including the success and speed of the rollout of the initial six
markets, ILEC interconnection agreements, and other factors. We will continue to
offer our Internet services nationally over our leased ATM network.
Key data for our initial six markets is listed in the following table:
<TABLE>
<CAPTION>
ESTIMATED
BUSINESS ESTIMATED COLLOCATIONS IN
CITY LINES(2) RESIDENTIAL LINES(2) TOTAL LINES(2) PROGRESS(3)
<S> <C> <C> <C> <C>
Cleveland, OH 423,733 922,473 1,346,206 18
Columbus, OH 273,345 597,662 871,007 12
Chicago, IL 1,893,902 3,022,030 4,915,932 33
Detroit, MI 851,821 1,775,068 2,626,889 24
New York, NY 1,782,190 3,858,804 5,640,994 26
Boston, MA 859,422 1,492,218 2,351,640 20
---------- ------------ ------------ ---
Total 6,084,413 11,668,255 17,752,668 133
- --------------
</TABLE>
(1) Based on our current buildout schedule.
(2) Company estimates based on FCC, iMarket and TargetPro. Represents estimated
lines within the MSA.
(3) We are in various stages of the collocation process depending on the market
and its priority in our buildout schedule. Our collocation process consists
of the following basic phases:
o Gathering of demographic data for each region and selection of specific
ILEC facilities for collocation;
o Filing applications with the appropriate ILECs for collocation rights
at each selected location;
o Upon receipt of each approval, doing an evaluation of each facility;
o Building by the ILEC of a "cage" or preparation of space in which our
equipment will be placed; and
o Installing and testing of our equipment.
We have at least obtained approval of our applications for all collocations
in progress.
In determining our target markets, we prepare detailed analyses of
telecommunications and demographic data. Our target markets are chosen based on
a number of factors, including:
o Overall size of the telecommunications market;
o Concentration of business and residential customers;
o The availability of local transport networks and providers;
o Demographic statistics;
o The location of our existing resale customers;
o Our relationship with the ILEC and interconnection terms; and
o Regulatory environment.
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We are currently authorized to operate as a CLEC and/or long distance
telecommunications provider in 24 U.S. states.
We believe that our Smart LEC strategy enables us to enter and construct our
network into new cities with relatively low up-front capital expenditures, and a
significant proportion of success-based capital expenditures. Depending on the
size of the market and other factors, our up-front costs to enter a market are
expected to be approximately $7 to $10 million, which includes initial set-up
costs associated with entering a market, such as the installation of our switch
and collocation facilities. Additional capital expenditures will be based on
subscriber levels and services offered and are estimated to be approximately
$400-$500 per line. Therefore, a significant portion of the total capital
expenditures in a given market will be incurred only as we increase our
subscriber base and the related capacity of the network.
National Network
We currently have in place an ATM network which connects approximately 90
U.S. cities. We have facilities located in each of these points of presence, and
have leased DS-1 to OC-3 circuits to interconnect this network and to reach the
major national Internet access points. Approximately 49 owned ATM switches are
now being used across our network. The ATM switches allow us to carry multiple
services efficiently over our circuits. We directly peer with major backbone
providers including MCI WorldCom and PSINet. These peering arrangements help us
maintain a competitive low cost network. This national network interconnects our
local Smart LEC networks as they are deployed.
Our national network currently interconnects our point-of-presence
facilities in the following cities:
<TABLE>
<S> <C> <C> <C>
Akron, OH Detroit, MI Memphis, TN Rochester, NY
Albany, NY El Paso, TX Merriville, IN Rockford, IL
Albuquerque, NM Flint, MI Milwaukee, WI Sacramento, CA
Atlanta, GA Grand Rapids, MI Minneapolis/St. Paul, MN Salt Lake City, UT
Austin, TX Green Bay, WI Montgomery, AL San Antonio, TX
Billings, MT Greensboro, NC Nashville, TN San Diego, CA
Birmingham, AL Greenville, SC Newark, NJ San Francisco, CA
Boise, ID Hartford, CT New Orleans, LA San Jose/Mae West, CA
Boston, MA Houston, TX New York, NY Seattle, WA
Buffalo, NY Indianapolis, IN Norfolk, VA South Bend, IN
Champaign, IL Irvine, CA Oklahoma City, OK Spokane, WA
Charlotte, NC Jackson, MS Omaha, NE Springfield, IL
Chicago, IL Kansas City, MO Pensauken, NJ St. Louis, MO
Cincinnati, OH Knoxville, TN Peoria, IL Stamford, CT
Cleveland, OH Lansing, MI Philadelphia, PA Syracuse, NY
Colorado Springs, CO Las Vegas, NV Phoenix, AZ Toledo, OH
Columbia, SC Laurel, MD Pittsburgh, PA Topeka, KS
Columbus, OH Lexington, KY Portage, IN Traverse City, MI
Corpus Christie, TX Little Rock, AR Portland, OR Tucson, AZ
Dallas/Ft. Worth, TX Los Angeles, CA Raleigh/Durham, NC Tulsa, OK
Dayton, OH Louisville, KY Reno, NV Washington, DC
Denver, CO Madison, WI Richmond, VA Wichita, KS
Des Moines, IA
</TABLE>
Our national leased circuits currently cover approximately 2,500 miles of
OC-3 circuits, approximately 27,000 miles of DS-3 circuits and approximately
20,000 miles of DS-1 circuits.
Technology Management Center
We opened our state-of-the-art Technology Management Center (TMC) during the
first quarter of 2000. The TMC monitors CoreComm's national facilities-based
network, including its Internet backbone. Using the latest network management
software, the TMC is able to provide real-time information to ensure network
reliability and instant network upgrades to meet consumer demand. The TMC houses
the latest in call routing and switching equipment for local and long distance
telephone services and features, and Digital Subscriber Line (DSL) technology.
The facility operates 24 hours, seven days a week and has a staff of 25
professionals.
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<PAGE> 14
The Telecommunications Act of 1996
Our ability to lease unbundled network elements from incumbent providers is
the result of the Telecommunications Act of 1996. The Telecommunications Act
opened up the local telecommunications exchange market to competition, creating
an attractive opportunity for us and other carriers. The Telecommunications Act
requires that ILECs offer the use of their networks for total resale or the
lease of unbundled network elements, and that ILECs permit other carriers to
collocate and interconnect their equipment within the ILECs' central offices.
Moreover, an ILEC that is also a Bell operating company (BOC) is prohibited from
entering the long distance market in its home region until it is determined that
there is a significant level of competition in its local service market.
LMDS Broadband Wireless Spectrum
As a complement to our Smart LEC network, we own Local Multipoint
Distribution Service (LMDS) licenses for the broadband wireless spectrum. Our
licenses cover nearly all of the state of Ohio and represent more than 10.5
million "POPs". With 1,150 MHz of spectrum, these licenses have much greater
bandwidth than cellular or PCS licenses (up to 30 MHz) or other fixed wireless
licenses (80-400 MHz). We are the fourth largest holder of this spectrum in
North America. NEXTLINK Communications, Inc. is the largest license holder, and
has licenses for major U.S. population centers outside of Ohio.
LMDS is a newly authorized fixed broadband wireless service that may be used
to provide high-speed data transfer, telephone service, telecommunications
network transmission, Internet access, video broadcasting, video conferencing,
and other services. LMDS uses frequencies in the 28GHz to 31GHz range. The
spectrum is useable for communication services from a fixed antenna, but is not
suitable for mobile or portable communications. The service is subject to line
of site limitations and rain attenuation, but current systems seek to reduce
these impediments through advanced system architecture and the strategic
placement of transmitters. The point-to-multipoint technology of LMDS allows a
single hub site antenna to be used to form multiple paths with customer antennas
at numerous locations. LMDS can thus be used to provide a wireless high-capacity
broadband service for the "last mile" to a subscriber's home or office.
As LMDS technology advances, we intend to use this spectrum to offer
additional communications services and to expand the reach of our network. For
some locations, we believe that LMDS may offer a substantially lower cost
solution for providing high-quality broadband services than other competing
delivery systems such as fiber or copper extensions. LMDS equipment is not in
general commercial service at this time, but technology is currently in
development and we have established relationships with several equipment
vendors.
Through a wholly owned subsidiary, in June 1998, we were awarded A-Block
licenses in 15 markets in Ohio with a total of 10,573,982 POPs (representing
more than 95% of the POPs in Ohio). Each LMDS license covers a defined Basic
Trading Area, and our A-Block LMDS licenses consist of 1,150 MHz of spectrum.
CoreComm bid $25.2 million for such licenses, for an average of $2.39 per POP.
POPs are the estimated population of a market. The number of POP's owned by an
operator does not represent the number of users of its services and is not
necessarily indicative of the number of potential subscribers.
PRODUCTS AND SERVICES
We currently offer our business and residential customers an extensive array
of voice and data services in order to satisfy and capture all of their
communications needs.
Bundled Packages
In our current service offerings, we bundle communications products and
services in order to give our customers increased convenience, flexibility and
choice, at good "value for money." We typically offer a platform of basic
services, which represents a minimum selection of services to be offered, and
then create ways for the customers to easily and conveniently increase the other
services purchased according to their tastes.
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<PAGE> 15
For example in our current residential offering, we combine a basic package
of voice services with Internet access, which we call the "e-Chat" service.
Under the e-Chat service, customers are offered a bundled package of
communications services that includes local, long distance and Internet service.
Although the details of the offerings vary somewhat by region, the service
typically includes:
o Local dial tone
o Local calls
o Call waiting
o Caller-ID
o Personal "800" number
o Premium Internet Service
o 56K unlimited access
o 5 e-mail accounts
o personal web space
o Long distance service option (10 cents per minute)
Additional options and features (such as voice mail, three-way calling, an
additional line, and additional web site space) can be easily and flexibly added
to the service. The pricing for e-Chat varies by region, but in all areas our
price is based on the exact retail pricing from the RBOC for the same local
telephony services.
This marketing strategy has been based on the successful experience of
management in penetrating the residential market and competing with incumbent
operators in its other communications companies. We believe that this type of
marketing strategy has many benefits for both potential customers and CoreComm.
We believe that potential customers will be attracted to the simplicity of
both how we offer and price the service, and of having consolidated services
with one provider on one invoice. In addition, we believe that our proposition
will be viewed as good "value for money". For the same price that customers
currently pay the incumbent operator for telephone alone, from CoreComm they can
get the same telephone service, plus Internet access. We price the service at
the same rates as the RBOC's telephone service so that it can be perceived
simply, easily and quickly as a valuable service. The ability to add additional
features conveniently enhances the overall flexibility, and allows customers to
tailor the service for their individual needs.
In addition, we believe that these types of bundled services will improve
our operating results. The structure and strategy of our residential product
offerings will have a significant impact on our ability to penetrate our target
markets successfully. We believe that bundled offerings like our e-Chat service
will be attractive to potential customers. In addition, we believe bundled
packages improve customer retention because customers typically must approach
multiple providers in order to replace the bundled CoreComm services. Finally,
we believe that combining a feature-rich telephony service with Internet access
service will attract communications-intensive users, who typically generate
higher average revenue and are more likely to subscribe to additional
communications services, such as high speed access.
Although the specific components of our offerings will change, we will
continue our strategy of designing attractive marketing packages which give the
customer flexibility and choice, with convenient ways to subscribe to additional
services.
Voice and Data Services
We currently offer the following voice, data and Internet services to
business and residential customers in our markets:
o Local Exchange Services -- including standard dial tone, local calling,
Centrex services, Emergency 911 services, operator assisted calling,
access to the long distance network, and other related services.
o Custom Calling Features -- including call waiting, call forwarding,
caller ID, voice mail, conference calling and other enhanced features.
o Long Distance Services -- including 1+ interLATA calls (which are calls
across Local Access and Transport Areas), intraLATA calls,
international calls, 800/888/877 toll free services, calling cards and
other related services.
o Internet Access Services -- including dial-up and dedicated access to
the Internet over conventional modems, ISDN, T-1, DS-3 and higher speed
connections.
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<PAGE> 16
o Web Site Hosting and Design -- including dedicated and shared site
hosting and, typically through third parties, web site design.
o Data Networking Services -- including a variety of data circuits and
networking solutions.
DSL Offering
DSL is a transmission technology that allows for the high speed transport of
significant levels of voice and data over conventional, copper phone lines. DSL
can deliver speeds of up to 7 Mbits per second, which is the equivalent of more
than 100 voice grade circuits, over a single copper loop.
DSL technology enables consumers to transfer data or access the Internet at
high speeds. In addition to significantly increasing data transfer rates, DSL
technology offers an alternative for providing multiple voice lines or voice and
data carried over the same pair of twisted copper wire. By using DSL, businesses
can obtain the same number of voice lines over a single loop that would normally
be obtained using a more expensive standard T1 or other circuit. DSL technology
also makes it possible for business or residential customers to obtain telephone
service and high-speed data service simultaneously over a standard copper
telephone line.
We believe there are several benefits to DSL, including:
o High bandwidth, high-speed, "always on" Internet connections;
o Dedicated, not shared bandwidth, which allows for "guaranteed"
performance levels;
o Ratable service, which allows us to tailor the service to the
customers' needs and allows the customers to determine how much money
to expend for the amount of high speed bandwidth they need;
o Ability to use the same loop for voice and data simultaneously;
o Enhanced security;
o Utilization of existing copper infrastructure, which allows faster
rollout and lowers deployment costs;
o Increased telephony margins as a result of providing multiple services
over a single local loop; and
o Deployment with success-based capital expenditures.
We believe our Smart LEC network is well suited to capitalize on DSL
technology. In our own switch facilities and our collocation facilities, we are
deploying DSL access equipment (including DSLAMs). DSLAMs are connected to the
copper loops at the end office, and aggregate and concentrate the data traffic
from the end user. DSL technology is limited by the length of the loop being
used, which typically must be less than three miles, as well as other factors
such as the condition and quality of the copper line. We rollout our DSL network
and services simultaneously with the telephony network. We use DSL to provide
high-speed Internet access and data services and intend to use DSL to provide
combined data and voice services over a single copper loop, and voice circuit
trunking to connect multiple access lines.
We deploy multiple forms of DSL in order to provide a broad service offering
to our customers and to expand the DSL coverage of our target markets. Our
offerings include different forms of Asymmetric DSL (ADSL) including Rate
Adaptive DSL (RADSL), Symmetric DSL (SDSL) and Integrated DSL (IDSL). Our ADSL
offering is expected to include G.lite as well. We believe that a widely
accepted standard, such as G.lite, will enhance our ability to penetrate our
target markets with DSL services.
Other Related Services
Cellular and Paging Services. As a complement to our voice and data
services, we also offer cellular and paging services. Although these are not
core products and do not utilize our own networks, they are offered as an
additional service for our business and residential customers for added choice
and convenience. We are currently offering cellular services in Ohio and
Michigan, and may choose to add other markets in the future. Our paging service
is available nationally. We have resale agreements with the three major
providers of cellular service in Michigan and Ohio: AirTouch Cellular, GTE
Mobilenet Inc. and Ameritech Mobile Communications, Inc. In addition, we sell
retail cellular long distance telephone services to cellular customers of
various local cellular service providers who have chosen us as their long
distance service provider.
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<PAGE> 17
IP Telephony. With recent advancements in the development of telephony
equipment using Internet Protocol, the overall quality of telephone calls
delivered over an IP network has become increasingly reliable and has become
more equivalent to the circuit-switched network. Although we are not currently
using this technology to deliver our voice traffic, our local and national
networks have been designed to allow for the use of IP telephony when and if
reliable technology becomes available.
Under this technology, our platform would compress and convert voice into IP
packets using voice compression algorithms, digital signal processors and
ancillary software. These packets would then be transmitted via our national IP
network. Due to its scalability and compression features, this technology would
allow a greater quantity of simultaneous voice calls and data to be carried over
the network compared to traditional circuit switching, thus utilizing
significantly less bandwidth. Potential services offered under this technology
would include local and long distance calling, fax transmission, call
termination, national voicemail, and other related services.
SALES AND MARKETING
Our marketing strategy is to provide business and residential customers a
bundled package of high quality telecommunications services, delivered with
quality care and service to the customer at prices which offer "value for the
money".
In its prior experience, our management has had significant success in
marketing integrated communications products in several other operations both in
the U.S. and abroad. We believe much of this success was due to our management's
ability to creatively and effectively design and market integrated
communications products and services. We intend to capitalize on this experience
to develop service offerings to attract and retain business and residential
customers in our target markets.
A core part of our strategy is to offer our customers bundled
telecommunications, Internet and data services. Our integrated service offerings
are packaged and priced to give the customer increased flexibility, choice, and
value, while also enhancing convenience. Our offerings can be created to allow
flexibility to meet individual customer needs, and are conveniently offered on a
single bill. We believe that offering combined packages of local and long
distance telephony, Internet access and data services is attractive to the
potential business and residential customers in our target markets. In addition
to attracting customers, we believe this strategy also improves our
profitability by increasing average revenue per customer, reducing customer
acquisition costs and other operating costs, and improving customer retention.
The broad reach of the Smart LEC network enables us to market our services
over wide geographical areas. By using a combination of resold and switch-based
services, we are not limited to offering services only in areas where we have
built our own networks. We capitalize on our ability to market over wide areas
by utilizing mass marketing strategies and other efficient methods of
communicating with our potential customer base. For example, we have contracted
to be one of only four gate sponsors for the new football stadium for the
Cleveland Browns. Under this agreement, we have prominent placement of
advertisements throughout the stadium, an entry gate known as the CoreComm Gate,
game giveaway opportunities, and other related advertising benefits. The broad
reach of our network across the Cleveland area allows us to take advantage of
such mass market opportunities. We believe that these and other initiatives will
increase the awareness of the CoreComm brand and will attract new business and
residential customers in our target markets. We believe that the ability to
market over larger areas increases the efficiency and effectiveness of our
marketing and advertising programs.
In the business market, we focus on a direct sales approach, targeting small
and medium-sized businesses. We believe that small to medium-sized businesses
represent a large and growing market which is currently undeserved by the ILECs
and competitive providers. We seek to attract these target customers with
customer-convenient bundles, providing simplicity, flexibility and ease of
decision-making. We use our sales force to sell directly to customers, to
establish a relationship with telecoms managers, and to better understand and
service their communications needs. We generally employ sales people with
significant experience in the telecommunications industry. In order to
effectively incentivize our sales force, a large portion of their compensation
is performance-based and focused on sales and customer retention. We try to
attract and retain qualified sales people by offering them the opportunity to
work with a successful management team in an entrepreneurial environment, with
equity participation through stock options.
CUSTOMER INTERFACE AND PROPRIETARY SYSTEMS
We believe that the customer experience must be easy, enjoyable, and
exceptional. We have developed integrated systems and procedures that will
substantially support all aspects of our business, including provisioning,
billing, customer care and collections. Our information services and customer
care operations are closely linked to ensure that all related operations are
effectively integrated. We believe this focus on the customer experience will
provide us with a competitive advantage in attracting and retaining customers.
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<PAGE> 18
"Internet Centric" Approach
We are in the process of actively developing and incorporating systems to
deliver "Internet Centric" operational support systems. These customer-facing
systems are expected to add functionality in the areas of electronic billing,
web-based customer care and e-commerce. We are preparing to support a
substantial portion of our customer interactions over the World Wide Web. Our
customers are able to order new services and interact with our customer care
department without using the telephone. They will also be able to view and pay
their bill online. We believe that this method of communicating with the
customer will not only be convenient for the customer, but will also increase
our operating efficiency.
We employ a variety of techniques to effectively and efficiently serve the
customer, including:
Efficient Fulfillment of Services -- Our systems support electronic tracking
of orders from provisioning through installation. Service orders will flow
directly from the consumer to our back office, and then on to the ILEC.
Administrative controls in our support systems are designed to provide
timely identification and resolution of customer concerns and issues.
Low-cost Billing -- We have developed a customer friendly, fully integrated
billing statement covering all of the communications services supplied. The
statement currently can be delivered electronically via e-mail. Customers
may elect to pay their bill automatically via credit card or direct debit.
We are further developing web-based electronic bill presentment and payment
capabilities. These services will reduce billing costs while providing
value-added services to customers such as the ability to sort billing data
and create customized reports.
Smart Customer Care -- We intend to continue to develop sophisticated
customer care systems that will increase our use of the Internet as a means
of communicating with our customers. We are currently making customer care
available via e-mail, which allows for simple requests and changes to be
processed without use of the phone and for customer care associates to work
from outside of our facilities. We are currently expanding our web-based
care services to include significant additional functionality. These and
other initiatives are expected to improve the efficiency of our customer
care resources by developing on-line tools which will enable customers to
communicate more efficiently with us and even service themselves when
appropriate.
Electronic Bonding & Proprietary Systems
We view the efficiency and the accuracy of our communications and interface
with ILECs as an important strategic priority. We are currently bonded
electronically with Ameritech and Bell Atlantic. This electronic interface
allows for more timely and accurate service ordering and provisioning of our
customers. We have real-time access to customer information as well as real-time
order entry and confirmation. We provision service to customers through our
proprietary systems, which are designed to interface with the ILECs' systems
through a variety of delivery mechanisms. Our systems and processes have been
developed to decrease the risk of human error associated with provisioning
customers by manual keying or fax.
Our customer interface systems have been developed and continue to be
enhanced in a client/server environment that allows for flexibility to
accommodate an expanding customer base, efficient entry into new markets,
switch-based services, and rapid development of additional functionality. Our
proprietary systems handle all pre-ordering activities, including obtaining
customer service records (CSR), finding and reserving telephone numbers,
verifying customer addresses, validating due dates, searching the ILEC's
switches for feature availability (COFA), and yellow page listings.
In addition, we have developed proprietary methods of ordering and
provisioning services through ILECs by formatting and sending electronic data
interchange (EDI) messages. These systems use common software for the actual
sending and receiving of purchase orders and acknowledgements, but use custom
code for the content of these messages. We typically use off-the-shelf software
for standard processes that is readily available, and develop proprietary
systems when such processes need to be modified to meet our needs.
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System Enhancements
Given the importance that we place on the efficiency, quality and scale of
our back office capabilities, we continuously upgrade our proprietary systems in
order to enhance their functionality and performance. Our recent and ongoing
enhancements to our information systems include the following:
o Our Rating and Billing engines are being re-engineered for
performance and scalability using a multi-tiered architecture.
o Our provisioning systems for the Ameritech region have been enhanced
to support Ameritech's five state region. Our service order
management system has been enhanced to validate in real time the ILEC
feature availability, integrate the electronic generation of service
order data, and integrate automated switch activation software for
our Class 5 switches, all within a single system. The provisioning
information is entered once, and it flows through our internal
systems, our switch, and the ILEC systems without any manual
processes.
o We have evaluated best of breed Interconnection Gateway packages that
will allow us to develop further electronic bonding with all future
ILECs in our business plan going forward, and are planning for the
integration with our current back office systems later this year.
o We have automated the migration processes to move customers from
resale to "on-net" via our service order management system, which has
been designed to eliminate any manual processes with the ILEC.
o We have purchased and installed a platform for our call centers which
has introduced skills-based routing of our inbound calls with our
automated attendant. This allows us to service our customers better
by ensuring that a call is delivered to a customer service
representative with the skills necessary to handle the customer.
o We have integrated a new auto-dialer with our collections system,
which has significantly increased collection agent productivity and
effectiveness.
COMMUNICATIONS INDUSTRY
We are participating in the large and rapidly changing U.S. wireline
telecommunications industry. We believe that the wireline telecommunications
industry benefits from positive price elasticity, as well as growing,
non-cyclical demand for services. According to the U.S. Census Bureau, the total
market size of the telecommunications services industry (which excludes cable
television and Internet access) has increased from approximately $160 billion in
1990 to approximately $285 billion in 1998. This represents growth of 78% over
this period. The wireline segment of this market accounts for approximately $208
billion, or 73% of the total telecommunications services market in 1998.
Approximately 50% of wireline segment revenues are derived from local service
and network access.
According to FCC data, the total local revenue generated by the CLECs and
competitive access providers was less than 2.5% of the total U.S. local revenues
in 1998. As of June 30, 1999, CLEC lines (resold and switched) constituted
approximately 2.6% of the total switched lines in the U.S.
The emergence of the Internet and demand for data services has had a
significant effect on the U.S. communications industry. The use of the Internet
in both businesses and residences has been increasing rapidly, and is expected
to continue its growth. Forrester Research projects that revenues from Internet
access services will grow from $10.3 billion in 1998 to $61.8 billion in 2003 in
the U.S. They also project that web hosting revenues will increase from $900
million in 1998 to $14.7 billion in 2003 in the U.S. Frost and Sullivan project
that the total U.S. market for high-speed and switched data services will grow
at an annual rate of approximately 17%, from $18.0 billion in 1997 to
approximately $40 billion by 2002. The Gartner Group forecasts data traffic to
grow more than five times faster than voice traffic through 2002, and that DSL
revenue will grow at an annual rate of over 200% from 1998 to 2003, to reach
$18.0 billion.
We believe the overall size and growth of the U.S. communications market
presents a significant opportunity for competitive communications providers.
There are several factors which we believe will enhance the ability for
competitive providers to compete with the incumbent operators, including general
market receptivity to alternative providers, the desire in the business market
to diversify services to multiple suppliers, and the ability of competitive
providers to attractively bundle services and to offer improved customer
service.
OUR OTHER BUSINESSES
We are exploring other telecommunications opportunities both domestically
and internationally, including other facilities-based telecommunications
businesses and prepaid cellular telephone service opportunities.
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COMPETITION
The telecommunications industry and all of its segments are highly
competitive and many of our existing and potential competitors have greater
financial, marketing, technical and other resources than we do. Please refer to
the section entitled "Risk Factors--We face heavy competition in the
telecommunications industry for all of the services we currently provide and
those we intend to provide in the future." Competition for our products and
services is based on price, quality, network reliability, service features and
responsiveness to customers' needs.
CLEC
In each of our markets, we face competition from ILECs, including Ameritech
and Bell Atlantic, as well as other providers of telecommunications services,
such as GTE, other CLECs and cable television companies. In the local exchange
markets, our principal competitor will be the ILECs. We also face competition or
prospective competition from one or more CLECs. For example the following
companies have each begun to offer local telecommunications services in major
U.S. markets using their own facilities or by resale of the incumbent local
exchange carrier's services or other providers' services: AT&T, MCI WorldCom,
ICG, NEXTLINK and Sprint.
Some of our competitors, including AT&T, MCI WorldCom and Sprint, have
entered into interconnection agreements with Ameritech in states in which we
operate. These competitors either have begun or in the near future likely will
begin offering local exchange service in those states. In addition to these long
distance service providers and existing CLECs, entities that currently offer or
are potentially capable of offering switched telecommunications services
include:
o wireless telephone system operators;
o large customers who build private networks;
o cable television companies; and
o other utilities.
Competition in our CLEC business will continue to intensify in the future
due to the increase in the size, resources and number of market participants.
Many facilities-based CLECs have committed substantial resources to building
their networks or to purchasing CLECs or IXCs with complementary facilities. By
building or purchasing a network or entering into interconnection agreements or
resale agreements with ILECs, including Regional Bell Operating Companies
(RBOCs) and IXCs, a provider can offer single source local and long distance
services similar to those offered by us. Such additional alternatives may
provide such competitors with greater flexibility and a lower cost structure
than us. Some of these CLECs and other facilities-based providers of local
exchange service are acquiring or being acquired by IXCs. These combined
entities may provide a bundled package of telecommunications products, including
local and long distance telephony, that is in direct competition with the
products offered or planned to be offered by us.
Under the Telecommunications Act and related federal and state regulatory
initiatives, barriers to local exchange competition are being removed. The
availability of broad-based local resale and introduction of facilities-based
local competition are required before the RBOCs may provide in-region long
distance services originating in their traditional service area. The RBOCs are
currently allowed to offer certain in-region "incidental" long distance services
(such as cellular, audio and visual programming and certain interactive storage
and retrieval functions) and to offer out-of-region landline long distance
services.
Section 271 of the Telecommunications Act prohibits an RBOC from providing
long distance service that originates (or in certain cases terminates) in one of
its in-region states until the RBOC has satisfied certain statutory conditions
in that state and has received the approval of the FCC. The FCC to date has
granted only one RBOC 271 application, which was filed by Bell Atlantic in New
York. It is currently reviewing an application filed by SBC for Texas. We
anticipate that RBOCs, including Bell Atlantic and SBC/Ameritech, will file
additional applications for in-region long distance authority in other states.
The FCC will have 90 days from the date an application for in-region long
distance authority is filed to decide whether to grant or deny the application.
Once the RBOCs are allowed to offer widespread in-region long distance services,
they will be in position to offer single-source local and long distance services
similar to those offered by CoreComm and the largest IXCs.
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While new business opportunities have been made available to us through the
Telecommunications Act and other federal and state regulatory initiatives,
regulators are likely to provide the ILECs with an increased degree of
flexibility with regard to pricing of their services as competition increases.
If the ILECs elect to lower their rates and sustain lower rates over time, this
may adversely affect our revenues and place downward pressure on the rates we
can charge. We believe the effect of lower rates may be offset by the increased
revenues available by offering new products and services to our target customers
as well as increased usage, but we cannot be sure that this will occur. In
addition, future regulatory decisions may afford the ILECs excessive pricing
flexibility or other regulatory relief which could have a material adverse
effect on us.
INTERNET
The Internet services market is also extremely competitive. We compete
directly or indirectly with the following categories of companies:
o established online services, such as America Online, the Microsoft
Network and Prodigy;
o local, regional and national ISPs, such as Earthlink/MindSpring and
Internet America;
o national telecommunications companies, such as AT&T and MCI;
o RBOCs, such as Ameritech and Bell Atlantic; and
o online cable services, such as Excite@Home and Roadrunner.
This competition will increase as large diversified telecommunications and
media companies acquire ISPs and as ISPs consolidate into larger, more
competitive companies. Diversified competitors may bundle other services and
products with Internet connectivity services, potentially placing us at a
significant competitive disadvantage. As a result, our businesses may suffer.
Our DSL service offering will also face competition from the traditional
telephone companies, cable modem service providers, competitive
telecommunications companies, traditional and new national long distance
carriers, other Internet service providers, on-line service providers and
wireless and satellite service providers.
LMDS
Depending on the services ultimately offered, our LMDS business could face
the same competition as outlined above. In addition, the extent it is used to
deliver pay television, our LMDS business will compete with franchised cable
television systems and also may face competition from several other types of
Multichannel Video Programming Distributors (MVPDs) including:
o Multichannel Multipoint Distribution Systems;
o Satellite Master Antenna Television Systems;
o DBS and other television receive-only satellite dishes;
o video service from telephone companies; and
o open video system operators.
MVPDs face competition from other sources of entertainment, such as movie
theaters and computer on-line services. Further, premium movie services offered
by MVPDs have encountered significant competition from the home video industry.
In areas where off-air television broadcasts can be received without the benefit
of terrestrial distribution systems, MVPDs have experienced competition from
such broadcasters. Online services and ISPs also serve as a source of
competition to MVPDs.
The Telecommunications Act relaxed the regulatory barriers to entry by ILECs
into the provision of video programming in their local telephone service areas,
and it substantially reduces current and future regulatory burdens on franchised
cable television systems, thus potentially resulting in significant additional
competition to LMDS operators from local telephone companies and franchised
cable television systems.
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OTHER BUSINESSES
In addition to our CLEC, Internet and LMDS businesses, our other businesses
face strong competition as well. These competitive businesses include long
distance service, cellular service and paging service. Our long distance service
faces competition from long distance carriers, including facilities-based
carriers such as AT&T, MCI WorldCom and Sprint and resellers of long distance
service. Our cellular service faces competition from other cellular carriers,
such as Vodafone AirTouch and AT&T, and from PCS carriers, such as Sprint PCS.
Our paging services are similarly exposed to competition from other providers of
paging services operating in the same local markets, regionally or nationally.
CUSTOMER DEPENDENCE AND SEASONALITY
We do not depend upon any single customer for any significant portion of our
business. Neither our business nor the telecommunications industry are generally
characterized as having a material seasonal element, and we do not expect our
business or the industry to become seasonal in the foreseeable future.
RECENT DEVELOPMENTS
AGREEMENT TO ACQUIRE ATX TELECOMMUNICATIONS SERVICES, INC.
On March 10, 2000, we announced that we had entered into a definitive
agreement to acquire ATX Telecommunications Services, Inc. ("ATX"), which is a
facilities based CLEC and integrated communications provider serving the
Mid-Atlantic states. We will pay total consideration consisting of (a)
approximately 12.4 million shares of the Company's common stock, (b) $250
million of 3% convertible preferred stock and (c) $150 million in cash, of which
up to $70 million, at our option, may be paid in senior notes with a two-year
maturity. The convertible preferred stock will be convertible into common stock
at $44.36 per share. Under the agreement's cap provisions, the shares of common
stock to be issued will be reduced if our stock price at closing exceeds $46.38
per share, and the number of common shares underlying the convertible preferred
stock will be reduced if our stock price at closing exceeds $44.36 per share.
The transaction is subject to regulatory and shareholder approval and other
customary closing conditions.
AGREEMENT TO ACQUIRE VOYAGER.NET, INC.
On March 13, 2000, we and Voyager.net, Inc. ("Voyager.net") announced that
we had entered into a definitive agreement through which we would acquire
Voyager.net for shares of our common stock and cash. Voyager.net is the largest
independent full-service Internet communications company in the Midwest, and is
rapidly expanding into DSL delivery of its services. Under the agreement,
Voyager.net shareholders will receive 0.292 shares of our common stock and $3 in
cash for each share of Voyager.net common stock (an aggregate of approximately
9.2 million shares and approximately $95 million in cash). Under the agreement's
collar provisions, the shares of common stock issued will be reduced if our
common stock price at closing exceeds $57 per share, and increased if our common
stock price at closing is below $41 per share. If our stock price at closing is
below $33 per share, there would be no further adjustment to the number of
shares of our common stock issued and Voyager.net will have the right to
terminate the transaction, subject to our right to adjust further the shares
issued. The transaction is subject to regulatory and shareholder approval and
other customary closing conditions. Holders of over a majority of the voting
shares of Voyager.net have entered into an agreement with us to vote in favor of
the transaction.
OFFERING OF CORECOMM CONVERTIBLE NOTES
On October 6, 1999, we closed our sale of $175 million of 6% Convertible
Subordinated Notes, due 2006 (the "Convertible Notes"). The Convertible Notes
were sold only in transactions exempt from or not subject to the registration
requirements of the Securities Act of 1933, as amended. The Convertible Notes
are convertible into shares of our common stock at a conversion price of $27.39
per share. Pursuant to a registration rights agreement, we have registered with
the Securities Exchange Commission the Convertible Notes and shares of common
stock issuable upon conversion of the Convertible Notes.
CORECOMM STOCK SPLITS
In August of 1999, our board of directors approved a 3-for-2 stock split,
payable as a stock dividend. The record date and the payment date for the stock
split were August 30, 1999 and September 2, 1999, respectively. In January 2000,
our board of directors approved another 3-for-2 stock split, also payable as a
stock dividend. The record date and the payment date of the second stock split
were January 28, 2000 and February 2, 2000, respectively. For both stock splits,
one new share of our common stock was distributed for each two shares of our
common stock owned on the record date for the stock split, with fractional
shares rounded up or down. All common stock and per share data have been
adjusted to reflect the stock splits.
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EMPLOYEES
As of December 31, 1999, we had an aggregate of approximately 850 employees.
None of our employees are represented by any labor organization. We believe that
our relationship with our employees is excellent.
OPTION PLANS
In 1998, our Board of Directors adopted the CoreComm Limited 1998 Stock
Option Plan and in 1999, our Board of Directors adopted the CoreComm Limited
1999 Stock Option Plan, reserving under these plans shares for issuances to
employees and directors.
The purpose of our stock option plans is to encourage stock ownership by our
employees and non-employee directors, and the employees and non-employee
directors of our divisions, subsidiary corporations and other affiliates, so as
to encourage our employees to continue being employed by us and to put forth
maximum efforts for the success of our business. Under our stock option plans,
grants may be made of options to acquire shares of our common stock. The options
may be "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code. The terms of options granted under our stock option
plans, including provisions regarding vesting, exercisability, exercise price
and duration, are generally set by the Compensation Committee of our Board of
Directors. In general, options under our plans are 20% vested at grant and vest
20% each January 1 after they are granted, until they are fully vested.
In January 1999, CoreComm, Inc., one of our wholly-owned subsidiaries,
adopted a stock option plan. Options granted under that plan were not to become
excercisable unless and until there was either a registered public offering of
CoreComm, Inc.'s common stock or a spin-off of CoreComm, Inc. However, pursuant
to the terms of the options granted under that plan, we reserved the right to
cancel the plan and issue new options in the parent company, CoreComm Limited.
In March 2000, the Compensation and Option Committee of our Board of Directors
approved the cancellation of the CoreComm, Inc. plan and the issuance of options
in CoreComm Limited to eligible employees of CoreComm, which will result in the
issuance of options to purchase approximately 2.7 million shares of CoreComm
Limited common stock. The strike prices of the new grants are approximately 30%
of the fair market value of our common stock on the date of the new grant.
Eligibility for receiving the new grants is determined by, among other things,
continued employment with CoreComm.
REGULATION
OVERVIEW
The telecommunications services we provide are subject to regulation by
federal, state and local government agencies. The following summary does not
purport to describe all current and proposed regulations and laws affecting the
telecommunications industry. Other existing federal and state regulations and
legislation are the subject of judicial proceedings, legislative hearings and
administrative proposals, which could change in varying degrees the manner in
which this industry operates. Neither the outcome of these proceedings nor their
impact on the telecommunications industry or our business can be determined at
this time. Future federal or state regulations and legislation may be less
favorable to us than current regulation and legislation and therefore may have a
material and adverse impact on our business and financial prospects. In
addition, we may expend significant financial and managerial resources to
participate in proceedings setting rules at either the federal or state level,
without achieving a favorable result.
At the federal level, the FCC has jurisdiction over interstate and
international services and interstate services are communications that originate
in one state and terminate in another. Intrastate services are communications
that originate and terminate in a single state and state public service
commissions exercise jurisdiction over intrastate services. Municipalities and
other local government agencies may also regulate limited aspects of our
business, such as use of government-owned rights-of-way and construction
permits. Our networks are also subject to numerous local regulations such as
building codes, franchise and right-of-way licensing requirements.
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TELECOMMUNICATIONS ACT OF 1996
The federal Telecommunications Act, enacted in 1996, has resulted and will
continue to result in substantial changes in the marketplace for
telecommunications services. These changes include, at present, opening local
exchange services to competition and, in the future, a substantial increase in
the addressable services for us. Among its more significant provisions, the
Telecommunications Act:
o removes legal barriers to entry into all telecommunications services,
such as long distance and local exchange services;
o requires ILECs (e.g., Ameritech or Bell Atlantic) to "interconnect"
with and provide services for resale by
competitors;
o establishes procedures for LECs and BOCs to enter into new services,
such as long distance and cable television;
o relaxes regulation of telecommunications services provided by ILECs
and all other telecommunications service providers; and
o directs the FCC to establish an explicit subsidy mechanism for the
preservation of universal service.
The FCC was also directed by Congress to revise and make explicit subsidies
inherent in the access charge paid by IXCs for use of local exchange carriers'
services.
REMOVAL OF ENTRY BARRIERS
The provisions of the Telecommunications Act should enable us to provide a
full range of local telecommunications services in any state. Although we will
be required to obtain certification from state public service commissions in
almost all cases, the Telecommunications Act should limit substantially the
ability of a state public service commission to deny a request for
certification. The provisions of the Telecommunications Act also reduce the
barriers to entry by other potential competitors and therefore increase the
level of competition we will likely face in all markets affected by the Act.
Please refer to the section entitled "Business--Competition."
INTERCONNECTION WITH LOCAL EXCHANGE CARRIER FACILITIES
A company cannot compete effectively with the ILECs in the switched local
telephone services market unless it is able to connect its facilities with the
ILEC's facilities and obtain access to certain essential services and resources
under reasonable rates, terms and conditions. The Telecommunications Act imposes
a number of access and interconnection requirements on all local exchange
providers, including CLECs, with additional requirements imposed on non-rural
ILECs. These requirements are intended to provide access to certain networks
under reasonable rates, terms and conditions. Specifically, ILECs must provide
the following:
UNBUNDLING OF NETWORK ELEMENTS. ILECs must offer access to various unbundled
elements of their network. This requirement allows new entrants to purchase at
cost-based rates elements of an ILEC's network that may be necessary to provide
service to a new entrant's customers.
DIALING PARITY. All local exchange carriers must provide dialing parity,
which means that a customer calling to or from a CLEC network cannot be required
to dial more digits than is required for a comparable call originating and
terminating on the ILEC's network.
TELEPHONE NUMBER PORTABILITY. Telephone number portability enables a
customer to keep the same telephone number when the customer switches local
exchange carriers.
RECIPROCAL COMPENSATION. The duty to provide reciprocal compensation means
that local exchange carriers must terminate calls that originate on competing
networks in exchange for a given level of compensation and that they are
entitled to termination of calls that originate on their network, for which they
must pay a given level of compensation.
RESALE. All local exchange carriers generally may not prohibit or place
unreasonable restrictions on the resale of their services. In addition, ILECs
must offer local exchange services to resellers at a wholesale rate that is less
than the retail rate charged to end users.
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COLLOCATION. ILECs must permit CLECs to install and maintain their own
network equipment in ILEC central offices and remote terminals subject to
certain rates, terms and conditions.
ACCESS TO RIGHTS-OF-WAY. All ILECs, CLECs and certain other utilities must
provide access to their poles, ducts, conduits and rights-of-way on a
reasonable, nondiscriminatory basis.
ILECs are required to negotiate in good faith with other carriers that
request any or all of the arrangements discussed above. If a requesting carrier
is unable to reach agreement with the ILEC within a prescribed time, either
carrier may request arbitration by the applicable state commission.
The rates charged by ILECs for interconnection and unbundled network
elements vary greatly from state to state. These rates must be approved by state
regulatory commissions, which often follows a lengthy and expensive negotiation,
arbitration, and review process. Recurring and non-recurring charges for
telephone lines and other unbundled network elements may change based on the
rates proposed by ILECs and approved by state regulatory commissions from time
to time, which could have an adverse effect on our operations. In addition, the
FCC's cost- based methodology for determining these rates is still subject to
judicial review, which creates uncertainty about how interconnection and
unbundled element rates will be determined in the future.
While the Telecommunications Act generally requires ILECs to offer
interconnection, unbundled network elements and resold services to CLECs,
ILEC-to-CLEC interconnection agreements may have short terms, requiring the CLEC
to renegotiate the agreements. ILECs may not provide timely provisioning or
adequate service quality, thereby impairing a CLEC's reputation with customers
who can easily switch back to the ILEC. In addition, the prices set in the
agreements may be subject to significant rate increases if state regulatory
commissions establish prices designed to pass on to the CLECs part of the
intrastate cost of providing universal service.
In January 1999, the United States Supreme Court upheld the FCC's authority
to adopt pricing rules for interconnection services, unbundled network elements,
and resale by CLECs. However, the Supreme Court instructed the FCC to reconsider
aspects of its 1996 order regarding the extent to which ILECs are required to
unbundle elements of their networks. The FCC's pricing rules are still subject
to further judicial review. On remand from the Supreme Court, the FCC adopted an
order on September 15, 1999, which specified the unbundled elements that ILECs
must make available to competitors. The FCC reaffirmed that incumbents must
provide unbundled access to six of the seven network elements that were listed
in the FCC's 1996 order. According to the FCC, the seventh item, operator and
directory assistance services, are no longer necessary to permit competition.
The FCC's order also added additional unbundled elements to the list --
subloops, portions of loops, dark fiber optic loops and transport -- but
declined, except in limited circumstances, to require ILEC's to unbundle the
facilities used to provide high-speed Internet access and other data services.
In addition, the FCC initiated a further rulemaking proceeding to consider
whether carriers should be able to combine certain unbundled elements to provide
special access services in competition with those provided by the ILECs.
Portions of the FCC's 1999 ruling have been appealed by several parties.
In February 1999, the FCC determined that calls to ISPs are interstate in
nature, thus falling under the FCC's jurisdiction and outside the scope of the
Communications Act's reciprocal compensation requirements. The FCC initiated a
review of compensation arrangements for calls to ISPs but stated that, in the
meantime, parties may voluntarily include reciprocal compensation provisions in
their interconnection agreements and that state commissions may order
compensation for termination of ISP calls. Many states decided to leave intact
existing decisions in favor of reciprocal compensation for ISP-bound calls. On
March 24, 2000, the U.S. Court of Appeals for the D.C. Circuit overturned the
FCC's decision that calls to ISPs are not local. The court found that the FCC
had failed to explain adequately its determination that a call does not
"terminate" at an ISP merely because the ISP then originates further
telecommunications that extend beyond state boundaries. In response to this
court ruling, the FCC could try to bolster its original jurisdictional
conclusion or it could determine that calls to ISPs are local. If it takes the
latter course, CLECs will be entitled to reciprocal compensation under the
Communications Act for terminating ISP-bound traffic, which could have a
favorable impact on our revenues. Such a decision, however, could also
potentially lead to more state control over Internet-related services, which
could have a negative effect on our roll out of such services.
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Several ILECs have filed petitions at the FCC and have initiated legislative
efforts to effect a waiver of the obligation to unbundle and offer services for
resale with regard to high-speed data or "advanced" services. In addition, the
ILECs are seeking to provide such services on an interLATA (long distance) basis
before they have been granted approval by the FCC pursuant to Section 271 of the
Communications Act to enter the long distance market. Although the FCC has held
that advanced services continue to be subject to the resale and unbundling
obligations of the Act, it has commenced a proceeding to determine whether ILECs
can create separate affiliates for advanced services that would be free of these
obligations. In November 1999, the FCC ruled that DSL services that traditional
telephone companies sell to Internet service providers need not be resold to
competitive telecommunications providers at wholesale rates. In addition, an FCC
decision on voluntary remand from the U.S. Court of Appeals for the D.C. Circuit
affirmed and clarified the FCC's position that advanced services are subject to
the interconnection, resale, and unbundling requirements of the Act. Permitting
ILECs to provision data services through separate affiliates with fewer
regulatory requirements could have a material adverse impact on our ability to
compete in the data services sector. The FCC also imposed conditions on the
merger of SBC with Ameritech in October 1999 that permit the provisioning of
advanced data services via separate subsidiaries pursuant to various
requirements, some of which expire in the near term. We cannot predict whether
these requirements are enforceable, nor whether they will deter anticompetitive
behavior if they are enforceable. Bell Atlantic's application for long distance
service in New York has been approved subject to similar separate subsidiary
provisions. These areas of regulation are subject to change through additional
proceedings at the FCC or judicial challenge.
On March 17, 2000, the U.S. Court of Appeals for the D.C. Circuit issued a
decision in which it vacated significant portions of an FCC order that granted
collocation rights to CLECs for advanced services equipment. In particular, the
court found that that FCC's order impermissibly appears to permit competitors to
collocate equipment that may do more than what is required to achieve
interconnection or access to unbundled network elements. It faulted the FCC for
requiring ILECs to permit collocation of any equipment that is "used or useful"
for either interconnection or access to unbundled elements "regardless of other
functionalities inherent in such equipment." It told the FCC to explain better
which types of equipment are actually "necessary" for interconnection or access.
On remand, the FCC could determine that much of the multi-function equipment
that CLECs generally wish to collocate today satisfies the court's "necessary"
standard. In fact, the court's only example of equipment that likely would not
meet the standard is equipment that facilitates payroll or data collection.
Nevertheless, it probably will be years before the FCC and the courts decide
this issue finally and, in the meantime, many ILECs may seek to interpret the
court's decision to mean that they do not have to permit the collocation of
multi-function equipment. This could significantly delay or hamper our network
deployment plans, which call for collocation of various types of equipment in
ILEC central offices.
In this March 17, 2000 order, the court also overturned the FCC's
determination that ILECs must permit collocating CLECs to cross-connect their
facilities. The court stated that the FCC failed to explain how cross-connects
between CLECs are necessary for interconnection with or access to the unbundled
elements of the ILEC. In addition, the court rejected some of the FCC's
provisions regarding the implementation of physical collocation, such as the
requirement that ILECs give competitors the option of collocating equipment "in
any unused space." The immediate impact of these rulings is that ILECs may seek
to hinder physical collocation, driving up collocation costs. The FCC will have
the opportunity to offer explanations for its decisions, but such explanations
may not be issued in the near future. The March 17 order did uphold certain FCC
rules, including the requirement that ILECs provide cageless and adjacent
collocation, and rules regarding cost allocation.
On December 9, 1999, the FCC released its line sharing order that requires
ILECs to offer line sharing as an unbundled network element by June 6, 2000.
Line sharing permits CLECs to use a customer's existing line to provide DSL
services while the ILEC continues to use the same line to provide voice service.
Prices for line sharing will be set by the states. The decision has been
appealed.
There are also numerous bills being considered by Congress that would
deregulate the provision of advanced services by ILECs. These regulatory or
legislative outcomes could have an adverse effect on our ability to obtain
access to the network elements necessary for the provision of advanced services
to our customers or to compete with ILECs in the provision of such services.
LOCAL EXCHANGE CARRIER ENTRY INTO NEW MARKETS
Our principal competitor in each market we enter is the ILEC. Prior to the
enactment of the Telecommunications Act, the RBOCs generally were prohibited by
the consent decree that broke up the Bell System from providing long distance
services. The Telecommunications Act established procedures under which a RBOC
can provide landline long distance services originating from (and in certain
cases, terminating in) its traditional telephone service area after receiving
approval from the FCC. The interconnection offered or provided by the RBOC must
comply with a competitive checklist that incorporates the interconnection
requirements discussed above. Please refer to the section entitled
"--Interconnection with Local Exchange Carrier Facilities." RBOCs are currently
permitted to provide landline long distance services to customers outside of
their local service areas and in conjunction with their mobile telephone service
offerings.
24
<PAGE> 27
Approval from the FCC will enable a RBOC to provide customers with a full
range of local and long distance telecommunications services. The provision of
landline long distance services by RBOCs is expected to reduce the market share
of the major long distance carriers, which may be significant customers of our
services. Consequently, the entry of the RBOCs into the long distance market may
have adverse consequences on the ability of CLECs both to generate access
revenues from the IXCs and to compete in offering a package of local and long
distance services. On December 22, 1999, the FCC approved an application filed
by Bell Atlantic seeking authority to begin providing long distance services to
customers located in the State of New York, where it also provides local
telephone service. This action represents the first approval by the FCC of an
RBOC request to provide long distance services to customers located in its local
operating region. The FCC's approval of Bell Atlantic's application is likely to
strengthen Bell Atlantic's competitive position in New York substantially. In
addition, we anticipate that Bell Atlantic will soon initiate similar
proceedings to obtain long distance service authority in other states in its
fourteen state operating region. For example, Bell Atlantic already has begun
the necessary regulatory review process in the Commonwealth of Massachusetts. In
addition, on January 10, 2000, Southwestern Bell filed an application with the
FCC seeking permission to provide long distance services to customers in Texas.
More RBOC requests to provide in-region long distance service are expected to be
filed with the FCC in the near future.
RELAXATION OF REGULATION
A goal of the Telecommunications Act is to increase competition for
telecommunications services, thereby reducing the need for regulation of these
services. To this end, the Telecommunications Act requires the FCC to streamline
its regulation of ILECs and permits the FCC to forbear from regulating
particular classes of telecommunications services or providers. Since we are a
non-dominant carrier and, therefore, are not heavily regulated by the FCC, the
potential for regulatory forbearance likely will be more beneficial to the ILECs
than to us in the long run.
The Communications Act requires all common carriers to charge just and
reasonable rates for their services and to file schedules of these rates with
the FCC. These schedules are known as "tariffs" and they represent a contract
between a carrier and its customers. The Telecommunications Act permits the FCC
to "forbear" from enforcing certain provisions of the Communications Act and the
FCC has used this authority to determine that it is in the public interest to
prohibit carriers from filing tariffs for their interstate services. This
decision of the FCC and its "mandatory detariffing" has been stayed by the U.S.
Court of Appeals for the D.C. Circuit. If the FCC is successful in its attempt
to preclude telecommunications providers from filing tariffs, it may increase
our exposure to litigation. Currently, tariffs contain provisions limiting the
liability of providers on a variety of issues. In the absence of filed tariffs,
carriers would have to rely on negotiated contracts with each customer to
provide such liability limitations.
Another FCC decision permits, but does not require, CLECs to file tariffs
for the charges that they levy on interstate long distance carriers for
completing calls to CLEC customers (refer to the discussion of "access charges"
below). In the absence of a tariff, a carrier depends on a contract with its
customers to determine the rates and conditions of service.
UNIVERSAL SERVICE AND ACCESS CHARGE REFORM
On May 8, 1997, the FCC issued an order implementing the provisions of the
Telecommunications Act relating to the preservation and advancement of universal
telephone service. This order requires all telecommunications carriers providing
interstate telecommunications services, including us, to contribute to universal
service support. Our share of the contributions used to support schools,
libraries and rural health care programs is based on our share of the total
industry end user telecommunications revenues. Our share of the federal
high-cost fund is based on our share of total interstate telecommunications
revenue. Although we have already begun contributing to the federal universal
service fund, the amount of our required contribution changes each quarter.
Various states are also in the process of implementing their own universal
service programs. We are currently unable to quantify the amount of subsidy
payments that we will be required to make and the effect that these required
payments will have on our financial condition.
On July 30, 1999, the United States Court of Appeals for the Fifth Circuit
overturned certain of the FCC's rules governing the basis on which the FCC
collects subsidy payments from telecommunications carriers and recovery of those
payments by ILECs. In October 1999, the FCC released two orders in response to
the Fifth Circuit decision. One order permits ILECs to continue to recover their
universal service contributions from access charges or to establish end-user
charges. The second order changed the contribution basis for school/library
funding to eliminate calculations based upon intrastate revenues. A number of
parties have petitioned the Supreme Court to review the Fifth Circuit's
decision.
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<PAGE> 28
In May 1999, the FCC adopted a framework for a new, forward-looking,
high-cost support mechanism that will provide support for non-rural
telecommunications carriers. The FCC stated that the support mechanism will be
used only to determine federal support and will not impose any obligation on a
state to impose intrastate surcharges. It is not possible to determine at this
time what effect this ruling will have on the level of contributions we are
required to make to either the federal or various state universal service
programs, or if it will become easier for us to become qualified as recipients
of universal service funds when we serve high-cost areas.
In a related proceeding, on May 16, 1997, the FCC issued an order
implementing certain reforms to its access charge rules. Access charges are
charges imposed by local exchange carriers on long distance providers for access
to the local exchange network, and are designed to compensate the local exchange
carrier for its investment in the local network. The FCC regulates interstate
access and the states regulate intrastate access. This order required ILECs to
substantially decrease over time the prices they charge for switched and special
access and changed how access charges are calculated. These changes are intended
to reduce access charges paid by IXCs to local exchange carriers and shift
certain usage-based charges to flat-rated, monthly per-line charges. To the
extent that these rules are effective in reducing access charges, our ability to
offer customers lower-cost access services might be impaired. Additionally, the
FCC ruled that ILECs may no longer impose certain interconnection charges on
competitive providers that interconnect with the ILEC at the end offices but do
not use the transport facilities.
On August 27, 1999, the FCC issued an order implementing further reforms to
its access charge rules. The FCC's order granted price cap LECs greater pricing
flexibility, and instituted other access charge reforms designed to increase
competition and reduce access charges. These changes could impair our ability to
offer customers lower-cost access services. The FCC also issued a notice of
proposed rulemaking, proposing additional pricing flexibility. In addition, the
FCC stated that it is considering whether to adopt rules constraining CLEC
access charges. To the extent CLEC access charges are reduced, our revenue could
decrease.
Some state public service commissions have adopted rules or are currently
considering actions to preserve universal services and promote the public
interest.
FEDERAL REGULATION GENERALLY
Through a series of proceedings, the FCC has established different levels of
regulation for "dominant carriers" and "non-dominant carriers." Only ILECs are
classified as dominant; all other providers of domestic interstate services are
classified as non-dominant carriers. As a non-dominant carrier, we are subject
to relatively limited regulation by the FCC. However, at a minimum, we must
offer interstate services at just and reasonable rates in a manner that is not
unreasonably discriminatory.
The FCC has adopted rules requiring ILECs to provide collocation to CLECs
for the purpose of interconnecting their competing networks. Under the rules
adopted by the Local Competition Orders, ILECs are required to provide either
physical collocation or virtual collocation at their switching offices.
Recently, the FCC established new rules designed to make it easier and less
expensive for CLECs to obtain collocation at ILEC central offices by, among
other things, restricting the ILECs' ability to prevent certain types of
equipment from being collocated and requiring ILECs to offer alternative
collocation arrangements to CLECs. On March 17, 2000, however, the U.S. Court
of Appeals for the D.C. Circuit overturned several of these collocation rules,
finding that the FCC had failed to make a determination about whether all the
types of equipment ILECs are required to collocate is "necessary" for
interconnection or access to unbundled elements. According to the court, such a
determination is required under the Communications Act. The court also rejected
other FCC rules that permit CLECs to cross-connect their equipment with the
equipment of other CLECs and give CLECs the option of collocating equipment in
any unused space in an ILEC central office. While, ultimately, the FCC could
provide reasoned explanations for its current collocation requirements, the
uncertainty created by this court decision could provide ILECs with a basis for
refusing to collocate multi-function equipment or provide collocation in a
timely and efficient manner. This could have a negative impact on our network
deployment plans.
All local exchange carriers, including CLECs, must:
o make their services available for resale by other carriers;
o provide nondiscriminatory access to rights-of-way;
o offer reciprocal compensation for termination of traffic; and
o provide dialing parity and telephone number portability.
26
<PAGE> 29
In addition, the Telecommunications Act requires all telecommunications
carriers to contribute to the universal service mechanism established by the FCC
and to ensure that their services are accessible to and usable by persons with
disabilities. Moreover, the FCC is considering the regulatory implications of
various aspects of local exchange competition. Any or all of these proceedings
may negatively affect CLECs, including us.
The May 21, 1997 order reforming the FCC's price cap formula and the August
27, 1999 order granting ILECs substantial pricing flexibility with regard to
interstate access services afford ILECs greater flexibility in establishing
rates and provide additional incentives to foster efficiency. Because these
regulatory initiatives enable ILECs to offer selectively reduced rates for
access services, the rates we may charge for access services could be
constrained. Our rates also will be constrained by our competitors which,
excluding the ILECs, are subject to the same streamlined regulatory regime as us
and can price their services to meet competition.
STATE REGULATION GENERALLY
Most state public service commissions require companies to be certified to
provide common carrier services. These certifications generally require a
showing that the carrier has adequate financial, managerial and technical
resources to offer the proposed services in a manner consistent with the public
interest.
In addition to obtaining certification, in each state, we must negotiate
terms of interconnection with the incumbent local exchange carrier before we can
begin providing switched services. Under the Telecommunications Act, the FCC has
adopted interconnection requirements, certain portions of which have been upheld
by the United States Supreme Court and other portions of which are subject to
reconsideration by the FCC or further judicial review. Please refer to the
section entitled "--Interconnection with Local Exchange Carrier Facilities."
State public utility commissions are required to approve interconnection
agreements before they become effective and must arbitrate disputes among the
parties upon request. We have already entered into interconnection agreements
with Ameritech, Cincinnati Bell Telephone and Bell Atlantic. We have also
initiated the process of negotiations with Ameritech and Bell Atlantic for
additional interconnection agreements. Regulatory changes could require
renegotiation of relevant portions of existing interconnection agreements, or
subject them to additional court and regulatory proceedings.
Some recent state regulatory commission decisions regarding the
applicability of the Telecommunications Act's reciprocal compensation provisions
to the termination of calls placed to ISPs could result in lower revenues for
CLECs in those states. The issue remains undecided in various other states.
We are not presently subject to price regulation based on costs or earnings.
Most states require CLECs to file tariffs setting forth the terms, conditions
and prices for intrastate services. Some states permit tariffs to list a rate
range or set prices on an individual case basis.
Several states provide ILECs with flexibility for their rates, special
contracts (selective discounting) and tariffs, particularly for services deemed
subject to competition. This pricing flexibility increases the ability of the
incumbent local exchange carrier to compete with us and constrains the rates we
may charge for its services. In light of the additional competition that is
expected to result from the Telecommunications Act, states may grant ILECs
additional pricing flexibility. At the same time, some ILECs may request
increases in certain local exchange rates to offset revenue losses due to
competition.
The rates that may be charged by ILECs for access to loops and other network
elements are set by state public service commissions based on pricing
established by the FCC. Proposed changes to existing rates are currently being
considered by public service commissions in several states, including states in
which we are presently operating. If approved, these changes could increase our
costs of doing business, thus having an adverse effect on our operations.
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<PAGE> 30
REGULATION OF RESELLERS
The FCC has defined resale as any activity in which a party (the reseller)
subscribes to the services or facilities of a facilities-based provider (or
another reseller) and then reoffers communications services to the public for
profit, with or without adding value. Resellers are common carriers generally
subject to all rules and regulations placed on providers of the underlying
services by either the FCC or the states in which they operate. The FCC has held
that prohibitions on the resale of common carrier services are unjust,
unreasonable, and unlawfully discriminatory in violation of the Communications
Act. Accordingly, all common carriers must make their services available for
resale at rates, terms, and conditions that do not unreasonably discriminate
against resellers. The Telecommunications Act imposes the additional duty upon
incumbent local exchange carriers to make their services available for resale at
wholesale rates. The FCC adopted specific requirements for determining such
wholesale rates for local telecommunications services. While the United States
Supreme Court upheld the FCC's authority to adopt these rules, the FCC's
specific pricing rules are subject to further judicial review. As to other
telecommunications services, however, there is no regulation that requires
discounts to resellers below those offered to end users of the same quantities
of like services. The FCC has determined that because of the competitive
development of broadband commercial mobile radio service, it will eliminate the
explicit requirement that those services be offered for resale after November
24, 2002.
LOCAL GOVERNMENT AUTHORIZATIONS
Many jurisdictions where we may provide service require license or franchise
fees based on a percentage of certain revenues. Because the Telecommunications
Act specifically allows municipalities to charge fees for use of the public
rights-of-way, it is likely that jurisdictions that do not currently impose fees
will seek to impose fees in the future. However, the amount and basis of these
fees have been successfully challenged by several telecommunications service
providers. Federal courts have struck down municipal ordinances that (1) do not
relate the fees imposed under the ordinance to the extent of a provider's use of
the rights-of-way; (2) do not relate the fees imposed under the ordinance to the
costs incurred by the local government in maintaining the rights-of-way; or (3)
seek to impose fees based on a concept of the "value" of the use to the provider
by relating the fees to provider revenues. Additionally, because the
Telecommunications Act requires jurisdictions to charge non-discriminatory fees
to all telecommunications providers, telecommunications providers are
challenging municipal fee structures that excuse other companies, particularly
the ILECs, from paying license or franchise fees, or allow them to pay fees that
are materially lower than those that are required from new competitors such as
CoreComm. A number of these decisions have been appealed and, in any event, it
is uncertain how quickly particular jurisdictions will respond to the court
decisions without a specific legal challenge initiated by us or another CLEC to
the fee structure at issue.
LOCAL MULTIPOINT DISTRIBUTION SERVICE
The FCC has established a new wireless service referred to as "Local
Multipoint Distribution Service" or LMDS. The FCC allocated two frequency blocks
in each of 493 Basic Trading Areas in the U.S. to LMDS: Block A with 1,150 MHz
of spectrum in the 28 GHz and 31 GHz bands, and Block B with 150 MHz in the 31
GHz band. LMDS licenses are awarded for ten-year terms with renewal expectancies
provided to licensees that make a showing of substantial service in their
licensed areas.
LMDS may be used to provide any kind of communications service on a common
carrier or non common-carrier basis. Radio frequencies in the 28 and 31 GHz
bands are generally capable of only "line-of-sight" transmission and reception,
are subject to interference from certain weather conditions, and do not lend
themselves to mobile applications. LMDS is expected to be used for the delivery
of various broadband services to homes and offices, including
telecommunications, Internet access, and two-way video. At least seven other
countries, including Canada and Mexico, have licensed LMDS on either a permanent
or experimental basis. LMDS licensees are expected to be able to provide a wide
array of services, two-way capabilities, and high capacity through the use of
newer digital equipment and transmission mechanisms. The FCC expects that
Block-A LMDS licensees especially, by applying cellular-style frequency re-use
technology to an already large frequency bandwidth, have the potential to become
competitors to ILECs and cable operators. Accordingly, the LMDS rules prohibit
ownership of Block-A licenses by ILECs and incumbent cable operators prior to
July 2000, but permit an applicant that would otherwise be prohibited from
holding a Block-A license to apply for a waiver of the ownership restriction by
showing that it does not have market power in its telephone or cable service
area.
The FCC held a simultaneous, multiple-round auction for the 986 LMDS
licenses which closed on March 25, 1998. 104 winning participants bid a total of
$578,663,029 for 864 licenses. No auction participant placed the minimum opening
bid on any of the remaining 122 licenses, which were reauctioned in April and
May, 1999. In the initial auction, we won 15 Block-A licenses for Basic Trading
Areas encompassing substantially all population centers in the state of Ohio,
for a total bid of $25,241,133. Auction participants that had average gross
revenues for the previous three years of $75 million or less, when aggregated
with all commonly controlled affiliates, were entitled to bidding credits of
25%, 35%, or 45%. We did not qualify for any bidding credit. The FCC has since
granted our 15 LMDS licenses with an effective date of June 8, 1998.
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<PAGE> 31
FUTURE INTERNATIONAL OPERATIONS
We may ultimately expand our operations to other countries and already
provide international resale services. The FCC requires every carrier that
intends to originate international telecommunications from within the U.S.,
either through the use of its own facilities or on a resale basis, to secure in
advance an authorization from the FCC under Section 214 of the Communications
Act. Additionally, these carriers must file with the FCC a tariff containing the
rates, terms, and conditions of their international service offerings. In
applying for a 214 Authorization, a carrier must disclose any affiliations with
or special concessions from foreign carriers or nations. The FCC has streamlined
its procedures for granting 214 Authorizations, providing a routine grant of
such authorizations in 35 days unless an application is formally opposed or the
applicant is affiliated with a carrier that controls bottleneck
telecommunications facilities in a foreign country, in which case the applicant
may be subject to more stringent regulation as a "dominant" carrier.
Additionally, applicants affiliated with foreign carriers in countries that are
signatories to the Telecommunications Annex to the World Trade Organization
General Agreement of Trade in Services, including Canada, have a reduced burden
of demonstrating their "non-dominance." Carriers that have received 214
Authorizations are subject to certain reporting requirements, must file
contracts with foreign correspondents, and are restricted in the provision of
certain services to certain nations, such as the use of resold private lines for
switched services and the provision of any services to countries on the FCC's
"exclusion list." We hold a 214 Authorization for both facilities-based and
resale international services and have filed a tariff for our international
resale services.
INTERNET REGULATION
The FCC currently does not regulate the provision of Internet service,
although it does regulate common carriers that provide elements of the
"backbone" networks on which the Internet is based. Similarly, state public
utility commissions generally do not regulate Internet service, except in some
limited circumstances where incumbent local exchange carriers provide Internet
services. The FCC and some states, however, are reviewing the development of the
Internet and the types of services that are provided through it. For example, if
the FCC should determine that an Internet service provider offers a service that
is an exact substitute for long distance telephone service with the sole
distinction that it is based on a packet-switched network rather than a
circuit-switched network, the FCC may determine that it should provide
regulatory parity for the services.
ITEM 2. PROPERTY
Certain of our subsidiaries lease switch buildings, ILEC collocations and
office space which we believe are adequate to serve our present business
operations and our needs for the foreseeable future. See the Notes to the
Consolidated Financial Statements included elsewhere in this Form 10-K for
information concerning lease commitments.
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any legal disputes that we expect to have a material
adverse effect on our results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
No matter was submitted to a vote of security holders of the Company during
the quarter ended December 31, 1999.
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<PAGE> 32
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
CoreComm formerly was a wholly owned subsidiary of Cellular Communications of
Puerto Rico, Inc. ("CCPR") (formerly CoreComm Incorporated). On September 2,
1998, CCPR distributed to its stockholders, on a one for one basis, all of the
capital stock of CoreComm. CoreComm's Common Stock began trading on the Nasdaq
Stock Market's National Market on September 2, 1998, under the Nasdaq symbol
"COMFV". Subsequently, on September 3, 1998, the symbol was changed to "COMMF,"
and on September 17, 1999, the symbol was changed to "COMM", under which it
presently trades. The following table sets forth for the periods indicated, the
high and low last sale prices on the Nasdaq Stock Market's National Market.
<TABLE>
<CAPTION>
LAST SALE PRICE
------------------------
HIGH LOW
------ -------
<S> <C> <C>
1998
Third Quarter (beginning September 2, 1998) $10.14 $ 4.44
Fourth Quarter $ 7.67 $ 3.33
1999
First Quarter $17.39 $ 7.28
Second Quarter $22.00 $16.11
Third Quarter $25.50 $20.53
Fourth Quarter $39.58 $23.83
2000
First Quarter (through March 23, 2000) $49.31 $32.17
</TABLE>
On March 23, 2000, the last sales price for the Common Stock on the Nasdaq Stock
Market National Market was $48.00. As of March 23, 2000, there were
approximately 376 record holders of the Common Stock. This figure does not
reflect beneficial ownership of shares held in nominee names.
We have never declared or paid any cash dividends on the Common Stock. We
anticipate that we will retain earnings, if any, for use in the operation and
expansion of its business and we do not anticipate paying any cash dividends in
the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data of CoreComm and its predecessor, OCOM
Corporation Telecoms Division ("OCOM") should be read in conjunction with the
historical financial statements and notes thereto included elsewhere in this
Form 10-K. The selected historical financial data relates to OCOM as it was
operated prior to its acquisition by CoreComm.
<TABLE>
<CAPTION>
THE PREDECESSOR (OCOM)
----------------------
FOR THE PERIOD
FROM APRIL 1,
1998 (DATE
OPERATIONS FOR THE PERIOD
YEAR ENDED COMMENCED) TO FROM JANUARY 1,
DECEMBER 31, DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31,
1999 (1) 1998 (2) MAY 31, 1998 1997 1996 1995 (3)
------------ --------------- --------------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $58,151 $ 6,713 $ 1,452 $ 3,579 $ 5,103 $ 4,001
Operating expenses 161,376 25,139 4,234 7,954 6,333 8,413
Net (loss) (103,524) (16,255) (2,782) (4,379) (1,097) (4,154)
Basic and diluted net
(loss) per common
share (4) (3.03) (.55) (.09) (.15) (.04) (.17)
Basic and diluted
weighted average number
of common shares(4) 34,189 29,678 29,664 29,419 29,691 24,908
</TABLE>
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<PAGE> 33
<TABLE>
<CAPTION>
THE PREDECESSOR (OCOM)
DECEMBER 31, -------------------------------
1999(1) 1998(2) 1997 1996 1995
-------- -------- ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $121,292 $133,899 $ (950) $ (490) $ (42)
Fixed assets--net 90,619 3,582 1,269 270 226
Total assets 392,103 176,526 1,731 917 1,020
Long-term debt 179,318 283 -- -- --
Other noncurrent liabilities 14,564 218 -- -- --
Shareholders' equity 126,926 169,297 -- -- --
Parent's investment -- -- 321 (208) (207)
</TABLE>
(1) In 1999, we acquired 100% of the stock of MegsINet Inc. and the CLEC
assets of USN Communications, Inc. In addition, we issued $175 million
principal amount of 6% Convertible Subordinated Notes due 2006.
(2) During the period from April 1, 1998 (date operations commenced) to
December 31, 1998, CCPR made the following contributions to CoreComm
prior to the spin-off: (a) a cash contribution of $150 million, (b)
businesses acquired by CCPR in April and June 1998 and (c) the
subsidiary that owns various LMDS licenses in Ohio that were acquired
for an aggregate of $25,241,000.
(3) OCOM incurred one-time costs of $2,294,000 in 1995 in connection with
the expansion of its cellular long distance resale business into
certain AT&T Wireless markets.
(4) After giving retroactive effect to the 3-for-2 stock split by way of
stock dividend paid in September 1999 and the 3-for-2 stock split by
way of stock dividend paid in February 2000. The weighted average
number of common shares prior to September 1998 are equivalent to
CCPR's historical weighted average shares (since CCPR shareholders
received one share of the Company for each CCPR share owned).
We have never declared or paid any cash dividends.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM APRIL 1, 1998 (DATE
OPERATIONS COMMENCED) TO DECEMBER 31, 1998
As a result of the completion of the acquisitions of 100% of the stock of
MegsINet Inc. and the CLEC assets of USN Communications, Inc. in May 1999, we
consolidated the results of operations of these businesses from the dates of
acquisition. The results of these businesses are not included in the 1998
results.
A significant component of the 1999 results is associated with the
acquisition of certain assets of USN. Although USN quickly developed a large
customer list and revenue base in 1997 and 1998, it had difficulties under its
previous management providing services, including billing, customer care and
other operational areas, and filed for bankruptcy in February 1999. Since the
acquisition, we have been focusing on improving these operations, and have been
successful in many areas. However, we did not actively sell additional lines in
these markets in 1999 because we were not fully satisfied with the quality of
the operations. Consequently, and consistent with our due diligence, transaction
structure and purchase price, revenues associated with the USN assets have
declined significantly since our acquisition, and additional declines may
continue as customers leave or "churn" off the service.
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<PAGE> 34
The increase in revenues to $58,151,000 from $6,713,000 is primarily due to
acquisitions in 1999, which accounted for $40,909,000 of the increase. The
remainder of the increase is primarily due to an increase in CLEC and ISP
revenues from an increase in customers, offset by the decline in cellular long
distance revenue as a result of customers switching to other long distance
providers. In the third quarter of 1999, we sold most of our prepaid cellular
debit card business and we terminated our cellular long distance business in
certain markets. We had revenues in 1999 of $2,223,000 from the prepaid cellular
debit card business and $519,000 from the cellular long distance business in
these markets.
Operating costs increased to $58,561,000 from $5,584,000 primarily due to
acquisitions in 1999, which accounted for $43,315,000 of the increase. The
remainder of the increase is primarily due to the increase in revenues.
Operating costs as a percentage of revenues increased to 101% from 83%. The
increase in percentage terms is the result of an increase in the fixed component
of operating expenses due to the migration toward a facilities-based
infrastructure. Operating costs as a percentage of revenues is expected to
remain higher than 1998 levels until customer and revenue growth exceeds the
increases in facilities-based infrastructure costs. In 1999, operating costs
were $2,543,000 from the prepaid cellular debit card business and $458,000 from
the cellular long distance business in the terminated markets.
Selling, general and administrative expenses increased to $74,185,000 from
$11,940,000 primarily due to acquisitions in 1999, which accounted for
$33,184,000 of the increase. The remainder of the increase is a result of
increased selling and marketing costs and increased customer service costs.
These costs are expected to increase in the foreseeable future as we grow our
operations and customer base.
Corporate expenses include the costs of our officers and headquarters
staff, the costs of operating the headquarters and costs incurred for strategic
planning and evaluation of business opportunities. Corporate expenses increased
to $7,996,000 from $2,049,000 because the 1998 expenses did not represent a full
period of results due to the fact that the spin-off from CCPR occurred on
September 2, 1998, at which time corporate expenses commenced. In addition,
allocated charges from NTL Incorporated (a company that has some of the same
officers and directors as CoreComm) have increased due to the sales in 1999 of
other affiliated companies.
The non-cash compensation charge of $1,056,000 in 1999 is recorded in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
related to a change in employee stock option agreements. The non-cash
compensation charge of $4,586,000 in 1998 is recorded in accordance with APB
Opinion No. 25, as a one time charge related to the issuance of the Company's
warrants and stock options to holders of CCPR's stock options in connection with
the Company's distribution to CCPR's shareholders.
Depreciation expense increased to $10,945,000 from $749,000 as a result of
acquisitions in 1999, which accounted for $7,176,000 of the increase and an
increase in fixed assets.
Amortization expense increased to $8,633,000 from $231,000 due to the
amortization of goodwill and other intangibles from the acquisitions in 1999.
Interest income and other, net, increased to $5,773,000 from $2,632,000
primarily due to interest income on the Company's cash, cash equivalents and
marketable securities.
Interest expense increased to $5,341,000 from $21,000 primarily due to
interest on the 6% Convertible Subordinated Notes issued in October 1999 and
interest on notes payable and capital leases of acquired businesses.
32
<PAGE> 35
FOR THE PERIOD FROM APRIL 1, 1998 (DATE OPERATIONS COMMENCED) TO DECEMBER 31,
1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997
As a result of the completion of the acquisitions of Digicom, Inc. in April
1998, certain assets of JeffRand Corp. (known as Wireless Outlet) in April 1998,
certain assets of OCOM Corporation in June 1998, and certain assets of Stratos
Internet Group, Inc. in November 1998, we consolidated the results of operations
of these businesses from the dates of acquisition. The following discussion
includes a comparison to the results of operations of OCOM, our predecessor
business. OCOM's primary historical business was its cellular long distance
resale business that has been and currently is a highly competitive segment of
the long distance telephone market.
The increase in revenues to $6,713,000 from $3,579,000 is primarily due to
acquisitions in 1998, which accounted for $4,535,000 of the increase. OCOM's
revenues decreased to $2,178,000 from $3,579,000 because OCOM's revenues prior
to its acquisition in June 1998 of $1,452,000 are not included in the 1998
amount. OCOM's cellular long distance revenues continued to decline in 1998 as a
result of customers switching to other long distance providers. This reduction
in revenues was offset by increases in CLEC and cellular revenues.
Operating costs increased to $5,584,000 from $1,581,000 primarily due to
acquisitions in 1998, which accounted for $3,895,000 of the increase. Operating
costs as a percentage of revenues increased to 83% from 44%. This increase is
the result of the reduction in cellular long distance revenues which to date has
the highest gross margin of our telecommunications businesses.
Selling, general and administrative expenses increased to $11,940,000 from
$5,934,000 as a result of increased selling and marketing costs and increased
customer service costs. These increases were offset by a reduction in billing
costs due to the implementation of in-house billing in the fourth quarter of
1997.
The non-cash compensation charge of $4,586,000 in 1998 is a one time charge
related to the issuance of the Company's warrants and stock options to holders
of CCPR's stock options in connection with the Company's distribution to CCPR's
shareholders.
Depreciation expense increased to $749,000 from $428,000 as a result of an
increase in fixed assets, primarily computer hardware and software.
Amortization expense increased to $231,000 from $11,000 due to the
amortization of goodwill from the acquisitions in 1998.
Interest income and other, net, increased to income of $2,632,000 from
expense of $4,000 primarily due to $2,585,000 of interest income on the
Company's cash, cash equivalents and marketable securities.
Interest expense increased to $21,000 from zero due to interest on the note
payable and capital leases.
March 2000 non-cash compensation expense. In March 2000, the Compensation
and Option Committee of the Board of Directors approved the issuance of options
in the Company to various employees to acquire approximately 2.7 million shares
of the Company's common stock at an exercise price of 30% of the fair market
value of our common stock on the date of the grant. In accordance with APB
Opinion No.25, "Accounting for Stock Issued to Employees," we will record a
non-cash compensation expense of approximately $44.8 million in March 2000 and a
non-cash deferred expense of approximately $48.5 million. We will charge the
deferred expense to non-cash compensation expense on a straight-line basis over
the vesting period of the stock options as follows: $15 million in 2000, $20
million in 2001, $11.6 million in 2002, $1.8 million in 2003 and $0.1 million
in 2004.
33
<PAGE> 36
LIQUIDITY AND CAPITAL RESOURCES
We will require significant resources to fund the construction of our
facilities-based network, develop and expand our existing businesses and fund
near term operating losses and debt service. We estimate that these requirements
will aggregate approximately $275 million in 2000, which excludes the effect of
the proposed acquisitions of ATX and Voyager.net. We intend to use cash and
securities on hand of $178.7 million at December 31, 1999 to meet a portion of
our operating and capital requirements. We are currently negotiating with
equipment manufacturers to provide us with additional vendor financing, and we
currently anticipate obtaining additional financing in the future. However,
there can be no assurance that the proposed financings will occur.
Acquisitions. In May 1999, we acquired MegsINet and the CLEC assets of USN
Communications. The USN acquisition includes a contingent payment in July 2000
which is payable only if the USN assets meet or exceed operating performance
thresholds. The total additional cash consideration that we may pay for the USN
assets is capped at $58.6 million. We do not expect the actual contingent
payment to be significant.
In the future, we plan to make further appropriate acquisitions which may
require significant acquisition related and capital expenditures. On March 10,
2000, we announced that the Company had entered into a definitive agreement to
acquire ATX Telecommunications Services, Inc. and on March 13, 2000, the Company
and Voyager.net, Inc. announced a definitive agreement to merge in a stock and
cash transaction. We will require between $80 million and $150 million in cash
for the ATX acquisition and approximately $95 million in cash for the
Voyager.net merger. In addition, we will issue new shares of convertible
preferred stock and common stock to the shareholders of ATX, and new shares of
common stock to the shareholders of Voyager.net. We are evaluating our financing
options and anticipate issuing additional debt and/or equity to fund the cash
portion of these acquisitions.
Historical Uses of Cash. For the year ended December 31, 1999, cash used in
operating activities increased to $72,417,000 from $12,322,000 in the period
from April 1, 1998 (date operations commenced) to December 31, 1998, primarily
due to the increase in the net loss to $103,524,000 from $16,255,000. The net
loss increased as a result of acquisitions and an increase in selling and
marketing costs and customer service expenses as we have grown the business.
For the year ended December 31, 1999, cash used to purchase fixed assets
increased to $20,575,000 from $2,341,000 in the period from April 1, 1998 (date
operations commenced) to December 31, 1998. The increase was due to acquisitions
and as a result of an increase in fixed asset purchases. The cash used for
acquisitions of $47,056,000 in the year ended December 31, 1999 is primarily for
payments in connection with the MegsINet and USN acquisitions.
Proceeds from borrowings, net of financing costs, of $168,545,000 in 1999
is primarily from the issuance of the 6% Convertible Subordinated Notes.
Network Construction. We intend to significantly expand our
telecommunications infrastructure in the United States over the next several
years. We have installed switches and other facilities, and we are in the
process of installing additional switches, Internet points-of-presence, and
other telecommunications facilities in many states. The amount of such
expenditures in 2000 will be related to the number of new markets entered, the
speed and location of equipment deployment, the timing and integration of
acquisitions, as well as the mix of resold vs. facilities-based services.
We have deployed our Smart LEC facilities in Columbus, Ohio, Cleveland,
Ohio and Chicago, Illinois and are currently developing three additional
markets: Detroit, Michigan, New York, New York and Boston, Massachusetts. These
six markets comprise approximately 18 million total access lines. In connection
with these markets, we are in the process of establishing collocation facilities
in approximately 133 ILEC central offices. We have also identified approximately
30 additional markets where we intend to deploy our Smart LEC network in
2000-2002.
34
<PAGE> 37
We believe that our Smart LEC strategy enables us to enter and construct
our networks into new cities with relatively low up-front expenditures and a
significant proportion of success-based capital expenditures. Depending on the
size of the market, we expect our up-front capital expenditures to be
approximately $7 to $10 million, which includes the costs of installing our
switch facility and our collocation facilities and other related initial set-up
and installation expenses.
The significant majority of the additional capital costs will be based on
subscriber levels. These costs will include equipment to increase network
capacity, such as ports and modems in our switch and access devices. These costs
will vary based on the type, volume and services of each customer, but are
estimated to be approximately $400-$500 per line. For example, a sample target
market may have 1 million business lines and 2 million residential lines, for a
total of 3 million lines. Our total level of capital expenditures for that
market will depend on our level of penetration. If we are able to gain 3%
overall penetration of the market, we would serve approximately 90,000 lines,
and based on approximately $400-$500 per line, we would spend approximately
$35-$45 million on additional capital costs developing and expanding our
networks in the market. A lower or higher penetration would decrease or
increase, respectively, our additional capital costs.
The foregoing summary of the cost structure of our entry into a typical
market does not purport to be indicative of our performance, but is provided
solely as a basis for understanding our basic cost structure for individual
communications services in a typical target market. You should be aware that our
actual performance could differ materially from our current expectations.
Operations. Our businesses will also consume capital to acquire new
customers and to finance the working capital required to support these new
customers. These businesses will also require additional billing, customer
service and other back-office infrastructure. These capabilities can be expanded
in-house or can be outsourced to reduce up-front capital requirements. To date,
our strategy has been to utilize the expertise developed by our management to
develop in-house billing and back-office capabilities.
LMDS. LMDS is a fixed broadband wireless service that may be used to
provide high-speed data transfer, telephone service, telecommunications network
transmission, Internet access, video broadcasting, video conferencing, and other
services. The spectrum is useable for communications services from a fixed
antenna, but is not suitable for mobile or portable communications. LMDS can be
used to provide a wireless high-capacity broadband service for the "last mile"
to a home or office.
The amount of capital required to construct our LMDS systems is not easily
quantifiable at this time, but is likely to be several times the $25 million
cost of the licenses. In addition to up-front network construction costs, a
significant ongoing capital requirement will be the cost to acquire customer
premise equipment to receive and transmit LMDS signals. We will deploy this LMDS
network only if we determine that we can achieve sufficient returns on our
capital invested, from reduced costs associated with providing our services or
from new services which we can offer through LMDS technology.
Sources of Liquidity. Our operations were initially funded by the $150
million cash capital contribution from CCPR in connection with the spin-off. In
October 1999, we issued $175 million principal amount of 6% Convertible
Subordinated Notes due 2006, and received net proceeds of $168.5 million.
Interest on the Convertible Subordinated Notes is payable semiannually on April
1 and October 1 of each year, commencing April 1, 2000. We expect to experience
substantial negative cash flow for the next several years due to the continued
development of our Smart LEC network and our other businesses. Our cash flow
requirements will depend upon:
o our network development schedules;
o acquisition opportunities;
o operating results; and
o technological developments.
35
<PAGE> 38
We are currently negotiating with equipment manufacturers, including Cisco
Systems, Inc., Lucent Technologies, Inc. and others to provide us with
additional vendor financing. In the aggregate, such financings are anticipated
to be significant. We are presently in the process of negotiating terms for
these transactions. However, until definitive agreements are reached with each
vendor, we cannot be certain that the proposed financings will occur, that the
terms will not change or that any alternative financing on terms satisfactory to
us will be available.
Our ability to raise additional capital will be dependent on a number of
factors, such as general economic and market conditions, which are beyond our
control. If we are unable to obtain additional financing or to obtain it on
favorable terms, we may be required to delay the construction of our Smart LEC
network, forego attractive business opportunities, or take other actions which
could adversely affect our business, results of operations and financial
condition.
We are a holding company with no significant assets other than cash and
securities and investments in and advances to our subsidiaries. We are therefore
likely to be dependent upon receipt of funds from our subsidiaries to meet our
own obligations. However, our subsidiaries' proposed debt agreements may prevent
the payment of dividends, loans or other distributions to us (except in certain
limited circumstances).
YEAR 2000
We had a comprehensive Year 2000 project designed to identify and assess
the risks associated with our information systems, products, operations,
infrastructure, suppliers and customers, and to develop, implement and test
remediation and contingency plans to mitigate these risks. To date, we have not
experienced any significant problems related to the Year 2000.
Because we use a variety of information systems and have additional systems
embedded in our operations and infrastructure, we cannot be sure that all of our
systems will continue to work together in a Year 2000-ready fashion.
Furthermore, we cannot be sure that we will not suffer business interruptions,
either because of our own Year 2000 problems or those of third-parties upon whom
we are reliant for services. Therefore, a problem that has not yet been
identified may arise and could have adverse consequences to us.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Securities and Exchange Commission's rule related to market risk
disclosure requires that we describe and quantify our potential losses from
market risk sensitive instruments attributable to reasonably possible market
changes. Market risk sensitive instruments include all financial or commodity
instruments and other financial instruments (such as investments and debt) that
are sensitive to future changes in interest rates, currency exchange rates,
commodity prices or other market factors. We are not exposed to market risks
from changes in foreign currency exchange rates or commodity prices. We do not
hold derivative financial instruments nor do we hold securities for trading or
speculative purposes. Under our current policies, we do not use interest rate
derivative instruments to manage our exposure to interest rate changes.
The fair-market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. The
fair value of our Convertible Subordinated Notes was determined from the quoted
market price. The fair value of our other notes payable are estimated using
discounted cash flow analyses, based on our current incremental borrowing rates
for similar types of borrowing arrangements.
36
<PAGE> 39
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
<TABLE>
<CAPTION>
Fair
Value
2000 2001 2002 2003 2004 Thereafter Total 12/31/99
---- ---- ---- ---- ---- ---------- ----- --------
(in thousands)
------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term Debt, including Current Portion
Fixed Rate $5,280 $4,229 $89 $ - $ - $175,000 $184,598 $281,530
Average Interest Rate 11.3% 11.1% 8.0% 6.0%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements are included herein commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10, 11, 12 AND 13.
The information required by Part III is incorporated by reference from
CoreComm's definitive proxy statement involving the election of directors which
CoreComm expects to file, pursuant to Regulation 14A, within 120 days following
the end of its fiscal year.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements--See list of Financial Statements on
page F-1.
(2) Financial Statement Schedules--See list of Financial
Statement Schedules on page F-1.
(3) Exhibits--See Exhibit Index on page 38.
(b) Reports on Form 8-K: During the fourth quarter of 1999, the
Company filed the following Current Reports on Form 8-K:
Form 8-K dated October 1, 1999 (filed October 4, 1999)
under item 5, reporting the pricing of $150 million 6%
Convertible Subordinated Notes due 2006; Form 8-K dated
October 6, 1999 (filed October 12, 1999) under item 2,
reporting the closing of the sale of $175 million of 6%
Convertible Subordinated Notes due 2006, including exercise
of $25 million over-allotment option.
(c) Exhibits--The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedules--See list of Financial
Statement Schedules on page F-1.
37
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
2.1 Distribution Agreement, dated as of August 18, 1998, between CoreComm
Incorporated and the Company(1)
2.2 Agreement and Plan of Merger, dated as of March 10, 2000, by and among
CoreComm Limited and ATX Telecommunications Services Inc.
2.3 Agreement and Plan of Merger, dated as of March 12, 2000, by and among
CoreComm Limited and Voyager.net Inc.
2.4 Agreement and Plan of Merger, dated as of February 17, 1999, by and
among CoreComm Limited, CoreComm Acquisition Sub, Inc., and MegsINet
Inc.(3)
2.5 First Amendment to Agreement and Plan of Merger, dated as of May 3,
1999, by and among CoreComm Limited, CoreComm Acquisition Sub, Inc.,
and MegsINet Inc.(2)
2.6 Asset Purchase Agreement, dated as of February 19, 1999, by and between
CoreComm Limited, USN Communications, Inc. ("USN") and several
subsidiaries of USN (3)
3.1 Company's Memorandum of Association and Certificate of Name Change(1)
3.2 Company's By-laws(1)
4.2 Rights Agreement, dated as of August 18, 1998, between CoreComm Limited
and Continental Stock Transfer & Trust Company, as Rights Agent(1)
4.3 First Amendment to Rights Agreement, dated as of January 20, 1999,
between CoreComm Limited and Continental Stock Transfer & Trust Company
4.4 Second Amendment to Rights Agreement, dated as of November 11, 1999,
between CoreComm Limited and Continental Stock Transfer & Trust Company
4.5 Form of Common Stock Certificate(1)
4.6 Indenture, dated as of October 6, 1999, by and between the Company and
The Chase Manhattan Bank as Trustee, with respect to the 6% Convertible
Notes due 2006 (4)
4.7 Registration Rights Agreement, dated October 6, 1999, by and among the
Company and the Initial Purchasers of the 6% Convertible Notes due
2006(4)
10.1 Form of Tax Disaffiliation Agreement between CoreComm Incorporated and
the Registrant(1)
10.2 CoreComm Limited 1998 Stock Option Plan(1)
10.3 CoreComm Limited Non-Employee Director Stock Option Plan (1)
10.4 CoreComm Ohio Limited 1999 Stock Option Plan(5)
10.5 CoreComm Limited 1999 Stock Option Plan
11 Statement re computation of per share earnings
21 Subsidiaries of the registrant
23.1 Consent of Ernst & Young, LLP
27.1 Financial Data Schedules
</TABLE>
(1) Incorporated by reference from the Company's Registration Statement on
Form 10-12G/A, Filed on August 19, 1998
(2) Incorporated by reference from the Company's Registration Statement on
Form S-4/A, File No. 333-74801
(3) Incorporated by reference from the Company's Registration Statement on
Form 8-K, Filed on February 24, 1999
(4) Incorporated by reference from the Company's Registration Statement on
Form S-3, File No. 333-90113
(5) Incorporated by reference from the Company's 1998 Annual Report on Form
10-K, Filed on March 22, 1999
38
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the under signed thereunto duly authorized. Dated: March 29, 2000
CORECOMM LIMITED
By: /s/ RICHARD J. LUBASCH
Senior Vice President,
General Counsel
and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ GEORGE S. BLUMENTHAL Chairman of the Board and Director March 29, 2000
George S. Blumenthal
/s/ J. BARCLAY KNAPP Principal Executive and Financial March 29, 2000
J. Barclay Knapp Officer and Director
/s/ PATTY J. FLYNT Principal Operating Officer March 29, 2000
Patty J. Flynt
/s/ GREGG GORELICK Principal Accounting Officer March 29, 2000
Gregg Gorelick
/s/ SIDNEY R. KNAFEL Director March 29, 2000
Sidney R. Knafel
/s/ TED H. MCCOURTNEY Director March 29, 2000
Ted H. McCourtney
/s/ DEL MINTZ Director March 29, 2000
Del Mintz
/s/ ALAN J. PATRICOF Director March 29, 2000
Alan J. Patricof
/s/ WARREN POTASH Director March 29, 2000
Warren Potash
</TABLE>
39
<PAGE> 42
Form 10-K -- Item 14(a)(1) and (2)
CoreComm Limited and Subsidiaries
Index to Consolidated Financial Statements
and Financial Statement Schedule
The following consolidated financial statements and schedule of CoreComm Limited
and Subsidiaries and its predecessor OCOM Corporation Telecoms Division are
included in Item 8:
<TABLE>
<S> <C>
Reports of Independent Auditors ............................................................. F-2
Consolidated Balance Sheets - December 31, 1999 and 1998 .................................... F-4
Consolidated Statements of Operations - Year Ended December 31, 1999,
for the Period from April 1, 1998 (date operations commenced) to
December 31, 1998, for the Period from January 1, 1998 to May 31, 1998
and for the Year Ended December 31, 1997 ............................................... F-5
Consolidated Statement of Shareholders' Equity - Year Ended
December 31, 1999 and for the Period from April 1, 1998
(date operations commenced) to December 31, 1998 ....................................... F-6
Statement of Parent's Investment (Deficiency) - For the Period from
January 1, 1998 to May 31, 1998 and for the Year Ended
December 31, 1997 ...................................................................... F-7
Consolidated Statements of Cash Flows - Year Ended December 31, 1999,
for the Period from April 1, 1998 (date operations commenced)
to December 31, 1998, for the Period from January 1, 1998 to
May 31, 1998 and for the Year Ended December 31, 1997 .................................. F-8
Notes to Consolidated Financial Statements .................................................. F-10
The following consolidated financial statement schedule of CoreComm Limited and
Subsidiaries and OCOM Corporation Telecoms Division is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts ............................................. F-28
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-1
<PAGE> 43
Report of Independent Auditors
Shareholders and Board of Directors
CoreComm Limited
We have audited the consolidated balance sheet of CoreComm Limited and
Subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year ended
December 31, 1999 and for the period from April 1, 1998 (date operations
commenced) to December 31, 1998. Our audits also included the financial
statement schedule listed in the Index at Item 14(a) for the year ended December
31, 1999 and for the period from April 1, 1998 (date operations commenced) to
December 31, 1998. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
CoreComm Limited and Subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1999 and for the period from April 1, 1998 (date operations
commenced) to December 31, 1998 in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
New York, New York
March 3, 2000
F-2
<PAGE> 44
Report of Independent Auditors
Shareholder
OCOM Corporation Telecoms Division
We have audited the statements of operations, parent's investment (deficiency)
and cash flows of OCOM Corporation Telecoms Division ("OCOM") for the period
from January 1, 1998 to May 31, 1998 and for the year ended December 31, 1997.
Our audit also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the results of operations and the cash flows of OCOM
Corporation Telecoms Division for the period from January 1, 1998 to May 31,
1998 and for the year ended December 31, 1997 in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 26, 1999
F-3
<PAGE> 45
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 86,685,000 $ 26,161,000
Marketable securities 92,041,000 110,718,000
Accounts receivable-trade, less allowance for doubtful
accounts of $3,949,000 (1999) and $742,000 (1998) 7,875,000 1,125,000
Due from affiliates 195,000 1,954,000
Other 5,791,000 669,000
------------------------------------
Total current assets 192,587,000 140,627,000
Fixed assets, net 90,619,000 3,582,000
Goodwill, net of accumulated amortization of $7,262,000 (1999)
and $230,000 (1998) 57,888,000 4,028,000
LMDS license costs 25,366,000 25,366,000
Other, net of accumulated amortization of $2,202,000 (1999) and
$1,000 (1998) 25,643,000 2,923,000
------------------------------------
$392,103,000 $176,526,000
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,851,000 $ 1,937,000
Accrued expenses 32,215,000 4,247,000
Equipment payable 4,702,000 -
Current portion of notes payable and capital lease obligations 19,127,000 133,000
Deferred revenue 1,400,000 411,000
------------------------------------
Total current liabilities 71,295,000 6,728,000
Notes payable 179,318,000 283,000
Capital lease obligations 14,564,000 218,000
Commitments and contingent liabilities
Shareholders' equity:
Series preferred stock - $.01 par value, authorized 1,000,000
shares; issued and outstanding none - -
Common stock - $.01 par value; authorized 75,000,000 shares;
issued and outstanding 38,556,000 (1999) and 29,697,000
(1998) shares 386,000 297,000
Additional paid-in capital 246,319,000 185,255,000
(Deficit) (119,779,000) (16,255,000)
------------------------------------
126,926,000 169,297,000
------------------------------------
$392,103,000 $176,526,000
====================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 46
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Consolidated Statements of Operations
<TABLE>
<CAPTION>
THE PREDECESSOR
(OCOM)
------------------------------
FOR THE PERIOD
FROM APRIL 1,
1998 (DATE FOR THE PERIOD
OPERATIONS FROM JANUARY 1,
YEAR ENDED COMMENCED) TO 1998 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, MAY 31, DECEMBER 31,
1999 1998 1998 1997
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $ 58,151,000 $ 6,713,000 $ 1,452,000 $ 3,579,000
COSTS AND EXPENSES
Operating 58,561,000 5,584,000 772,000 1,581,000
Selling, general and administrative 74,185,000 11,940,000 3,205,000 5,934,000
Corporate 7,996,000 2,049,000 - -
Non-cash compensation 1,056,000 4,586,000 - -
Depreciation 10,945,000 749,000 255,000 428,000
Amortization 8,633,000 231,000 2,000 11,000
---------------------------------------------------------------------
161,376,000 25,139,000 4,234,000 7,954,000
---------------------------------------------------------------------
Operating (loss) (103,225,000) (18,426,000) (2,782,000) (4,375,000)
OTHER INCOME (EXPENSE)
Interest income and other, net 5,773,000 2,632,000 - (4,000)
Interest expense (5,341,000) (21,000) - -
---------------------------------------------------------------------
(Loss) before income tax provision (102,793,000) (15,815,000) (2,782,000) (4,379,000)
Income tax provision (731,000) (440,000) - -
---------------------------------------------------------------------
Net (loss) $(103,524,000) $(16,255,000) $(2,782,000) $(4,379,000)
=====================================================================
Basic and diluted net (loss) per
share $(3.03) $(.55) $(.09) $(.15)
=====================================================================
Weighted average shares 34,189,000 29,678,000 29,664,000 29,419,000
=====================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 47
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Consolidated Statement of Shareholders' Equity
For the Period from April 1, 1998 (date operations commenced)
to December 31, 1998 and for the Year Ended December 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID-IN
SHARES PAR CAPITAL (DEFICIT)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial contribution 2,700,000 $ 27,000 $ 22,158,000
Capital contributions 26,994,000 270,000 158,508,000
Issuance of stock options 4,586,000
Exercise of warrants 3,000 3,000
Net (loss) for the period from April 1,
1998 (date operations commenced) to
December 31, 1998 $(16,255,000)
---------------------------------------------------------------
Balance, December 31, 1998 29,697,000 297,000 185,255,000 (16,255,000)
---------------------------------------------------------------
Exercise of stock options 804,000 8,000 5,232,000
Exercise of warrants 4,810,000 48,000 10,857,000
Common stock issued for acquisition 3,245,000 33,000 30,792,000
Stock options issued for acquisition 4,027,000
Warrants issued for acquisition 9,100,000
Stock option based compensation 1,056,000
Net (loss) for the year ended
December 31, 1999 (103,524,000)
---------------------------------------------------------------
Balance, December 31, 1999 38,556,000 $386,000 $246,319,000 $(119,779,000)
===============================================================
</TABLE>
The Consolidated Statement of Shareholders' Equity reflects on a retroactive
basis the 3-for-2 stock split by way of a stock dividend paid on September 2,
1999 and the 3-for-2 stock split by way of a stock dividend paid on February 2,
2000.
See accompanying notes.
F-6
<PAGE> 48
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Statement of Parent's Investment (Deficiency)
of OCOM Corporation Telecoms Division (the Predecessor)
For the Year Ended December 31, 1997 and
for the Period from January 1, 1998 to May 31, 1998
<TABLE>
<S> <C>
Balance, December 31, 1996 $ (208,000)
Capital contributions 4,908,000
Net (loss) for the year ended December 31, 1997 (4,379,000)
------------
Balance, December 31, 1997 321,000
Capital contributions 4,261,000
Net (loss) for the period ended May 31, 1998 (2,782,000)
------------
Balance, May 31, 1998 $1,800,000
============
</TABLE>
See accompanying notes.
F-7
<PAGE> 49
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
THE PREDECESSOR
(OCOM)
-------------------------------
FOR THE PERIOD
FROM APRIL 1, FOR THE
1998 (DATE PERIOD FROM
OPERATIONS JANUARY 1,
YEAR ENDED COMMENCED) TO 1998 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, MAY 31, DECEMBER 31,
1999 1998 1998 1997
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) $(103,524,000) $(16,255,000) $(2,782,000) $(4,379,000)
Adjustments to reconcile net (loss) to
net cash (used in) operating
activities:
Depreciation and amortization 19,578,000 980,000 257,000 439,000
Stock option based compensation 1,056,000 4,586,000 - -
Provision for losses on accounts
receivable 3,241,000 501,000 92,000 46,000
Accretion of interest on marketable
securities (3,053,000) (639,000) - -
Other 239,000 (119,000) - 82,000
Changes in operating assets and
liabilities, net of effect from
business acquisitions:
Accounts receivable 3,115,000 (480,000) (262,000) 129,000
Due from affiliates 1,759,000 (1,954,000) - -
Other current assets (3,488,000) (287,000) (179,000) (79,000)
Other assets (2,783,000) (2,824,000) - -
Accounts payable 5,390,000 1,261,000 (311,000) 169,000
Accrued expenses 6,114,000 2,814,000 (453,000) 116,000
Deferred revenue (61,000) 94,000 - -
-----------------------------------------------------------------------
Net cash (used in) operating activities (72,417,000) (12,322,000) (3,638,000) (3,477,000)
INVESTING ACTIVITIES
Purchase of fixed assets (20,575,000) (2,341,000) (623,000) (1,431,000)
Acquisitions, net of cash acquired (47,056,000) - - -
Purchase of marketable securities (142,922,000) (110,079,000) - -
Proceeds from sale of marketable
securities 164,652,000 - - -
-----------------------------------------------------------------------
Net cash (used in) investing activities (45,901,000) (112,420,000) (623,000) (1,431,000)
</TABLE>
F-8
<PAGE> 50
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
THE PREDECESSOR
(OCOM)
-------------------------------
FOR THE PERIOD
FROM APRIL 1, FOR THE
1998 (DATE PERIOD FROM
OPERATIONS JANUARY 1,
YEAR ENDED COMMENCED) TO 1998 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, MAY 31, DECEMBER 31,
1999 1998 1998 1997
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Capital contributions - 150,904,000 4,261,000 4,908,000
Proceeds from borrowing, net of
financing costs 168,545,000 - - -
Proceeds from exercise of stock
options and warrants 16,145,000 3,000 - -
Principal payments (3,469,000) - - -
Principal payments of capital lease
obligations (2,379,000) (4,000) - -
-----------------------------------------------------------------------
Net cash provided by financing
activities 178,842,000 150,903,000 4,261,000 4,908,000
-----------------------------------------------------------------------
Increase in cash and cash
equivalents 60,524,000 26,161,000 - -
Cash and cash equivalents at
beginning of period 26,161,000 - - -
-----------------------------------------------------------------------
Cash and cash equivalents at end of
period $86,685,000 $26,161,000 $ - $ -
=======================================================================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid for interest $ 2,032,000 $ 4,000 $ - $ -
Income taxes paid 1,421,000 - - -
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING ACTIVITIES
Capital contributions of noncash net
assets $ - $30,059,000 $ - $ -
Liabilities incurred to acquire fixed
assets 19,621,000 175,000 - -
Common stock, stock options and
warrants issued for acquisitions 43,952,000 - - -
</TABLE>
See accompanying notes.
F-9
<PAGE> 51
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BUSINESS
CoreComm Limited (the "Company"), formerly a wholly-owned subsidiary of
Cellular Communications of Puerto Rico, Inc. ("CCPR"), was formed in March
1998 (operations commenced in April 1998) in order to succeed to the
businesses and assets that were operated by OCOM Corporation and as an
appropriate vehicle to pursue new telecommunications opportunities outside
of Puerto Rico and the U.S. Virgin Islands. In September 1998, CCPR made a
cash contribution to the Company of $150,000,000 and distributed 100% of
the outstanding shares of the Company on a one-for-one basis to CCPR's
shareholders.
The Company's competitive local exchange carrier ("CLEC"), cellular long
distance, landline long distance and cellular resale businesses were
formerly owned and operated by OCOM Corporation Telecoms Division ("OCOM").
CCPR acquired the operating assets and related liabilities of these
businesses from OCOM on June 1, 1998. OCOM is the predecessor business to
the Company.
The Company seeks to become a leading provider of integrated telephone,
Internet and data services to business and residential customers in
targeted markets throughout the United States. As of December 31, 1999, the
Company's customers are located throughout the United States, although much
of the Company's business is conducted in Ohio and Illinois.
The Company's performance will be affected by, among other things, its
ability to implement expanded interconnection and collocation with the
facilities of incumbent local exchange carriers ("ILECs") and develop
efficient and effective working relationships with the ILECs and other
carriers. The Company has installed, and is currently in the process of
installing, its own switches and related equipment in certain of its
markets. The Company will continue to lease the unbundled local loop needed
to connect its customers to its switches. The Company purchases capacity
from the ILECs on a wholesale basis pursuant to contracts and sells it at
retail rates to its customers. The Company depends upon the ILECs to
maintain the quality of their service to the Company's customers. Also,
except for CLEC customers who are connected to one of the Company's
switches and Internet services customers, the Company depends upon the
ILECs for accurate and prompt billing information in order for the Company
to bill its customers.
The Company's business is highly competitive which results in pricing
pressure and increasing customer acquisition costs. Expenses are expected
to exceed revenues in each location in which the Company offers service
until a sufficient customer base is established. It is anticipated that
obtaining a sufficient customer base will take a number of years, and
positive cash flows from operations are not expected in the near future.
F-10
<PAGE> 52
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND BUSINESS (CONTINUED)
The following is the revenues from external customers for each of the
Company's communication services:
<TABLE>
<CAPTION>
THE PREDECESSOR
(OCOM)
-------------------------------
FOR THE PERIOD
FROM APRIL 1, FOR THE
1998 (DATE PERIOD FROM
OPERATIONS JANUARY 1,
YEAR ENDED COMMENCED) TO 1998 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, MAY 31, DECEMBER 31,
1999 1998 1998 1997
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Telecommunications $47,456,000 $2,993,000 $ 217,000 $ 167,000
Internet and Data 6,996,000 155,000 - -
Other (a) 3,699,000 3,565,000 1,235,000 3,412,000
-----------------------------------------------------------------------
$58,151,000 $6,713,000 $1,452,000 $3,579,000
=======================================================================
</TABLE>
(a) Other includes cellular long distance, wireless and paging revenue.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and those entities where the Company's
interest is greater than 50%. Significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were $71,564,000 and
$20,995,000 at December 31, 1999 and December 31, 1998, respectively, and
consisted of corporate commercial paper.
F-11
<PAGE> 53
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale, which are
carried at fair value. Unrealized holding gains and losses on securities,
net of tax, are carried as a separate component of shareholders' equity.
The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is
included in interest income. Realized gains and losses and declines in
value judged to be other than temporary will be included in interest
income. The cost of securities sold or matured is based on the specific
identification method. Interest on securities is included in interest
income.
Marketable securities at December 31, 1999 consisted of corporate
commercial paper. Marketable securities at December 31, 1998 consisted of a
certificate of deposit and corporate commercial paper. During the year
ended December 31, 1999 and the period from April 1, 1998 (date operations
commenced) to December 31, 1998, there were no realized gains or losses on
sales of securities. All of the marketable securities as of December 31,
1999 and 1998 had a contractual maturity of less than one year.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company records an estimate of uncollectible accounts receivable based
on the current aging of its receivables and its prior collection
experience.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets.
Estimated useful lives are as follows: operating equipment - 3 to 15 years,
computer hardware and software - 3 or 5 years and other equipment - 2 to 7
years, except for leasehold improvements for which the estimated useful
lives are the term of the lease.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If
the sum of the expected future undiscounted cash flows is less than the
carrying amount of the asset, a loss is recognized for the difference
between the fair value and carrying value of the asset.
F-12
<PAGE> 54
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations accounted for as purchases.
Goodwill is amortized on a straight-line basis over the period benefited,
which is estimated to be 5 to 10 years. The Company continually reviews the
recoverability of the carrying value of goodwill using the same methodology
that it uses for the evaluation of its other long-lived assets.
LMDS LICENSE COSTS
The costs incurred to acquire the Local Multipoint Distribution Service
("LMDS") licenses from the Federal Communications Commission (the "FCC")
were deferred and will be amortized on a straight-line basis over the term
of the licenses upon the commencement of operations. The Company
continually reviews the recoverability of the carrying value of LMDS
licenses using the same methodology that it uses for the evaluation of its
other long-lived assets.
OTHER ASSETS
Other assets include customer lists, deferred financing costs and
noncompetition agreements. Customer lists represent a portion of the excess
of the purchase price over the fair value of net assets acquired in
business combinations accounted for as purchases and are amortized on a
straight-line basis over 2 to 7 years. Deferred financing costs were
incurred in connection with the issuance of debt and are charged to
interest expense over the term of the related debt. Noncompetition
agreements obtained in connection with an acquisition were valued at
$100,000 and are being charged to expense on a straight-line basis over the
noncompetition period of 5 years. The Company continually reviews the
recoverability of the carrying value of these assets using the same
methodology that it uses for the evaluation of its other long-lived assets.
NET (LOSS) PER SHARE
The Company reports its net (loss) per share in accordance with Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". The weighted average
shares used for the computation of net (loss) per share prior to September
1998 are equivalent to CCPR's historical weighted average shares (since
CCPR shareholders received one share of the Company for each CCPR share
owned). The shares issuable upon the exercise of stock options, warrants
and convertible securities are excluded from the calculation of net (loss)
per share as their effect would be antidilutive.
F-13
<PAGE> 55
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET (LOSS) PER SHARE (CONTINUED)
In 1999 and 1998, the Company had 18.0 million and 9.8 million shares,
respectively, issuable upon the exercise of stock options, warrants and
convertible securities that have been excluded from the calculation of net
(loss) per share as their effect would be antidilutive. In 1997, CCPR had
5.3 million shares issuable upon the exercise of stock options that have
been excluded from the calculation of net loss per share as their effect
would be antidilutive.
REVENUE RECOGNITION
Revenue is recognized at the time service is provided to the customer.
Charges for services that are billed in advance are deferred and recognized
when earned.
ADVERTISING EXPENSE
The Company charges the cost of advertising to expense as incurred.
Advertising expense for the year ended December 31, 1999, for the period
from April 1, 1998 (date operations commenced) to December 31, 1998, for
the period from January 1, 1998 to May 31, 1998 and for the year ended
December 31, 1997 was $4,407,000, $812,000, $79,000 and $127,000,
respectively.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applies APB Opinion
No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock option plans.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted by the
Company effective January 1, 2001. Management does not anticipate that the
adoption of this new standard will have a significant effect on the results
of operations, financial condition or cash flows of the Company.
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", both of which had no effect on the consolidated financial
statements. The Company operates in a single business segment.
F-14
<PAGE> 56
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
4. ACQUISITIONS
In May 1999, the Company acquired 100% of the stock of MegsINet Inc., a
national Internet Service Provider ("ISP") with a national Asynchronous
Transfer Mode network and local telecommunications facilities in Chicago
for a total consideration of $16.8 million in cash and 3.2 million shares
of the Company's common stock. In addition, the Company exchanged MegsINet
stock options for options to purchase 444,000 shares of the Company's
common stock, repaid $2.0 million of MegsINet debt and incurred acquisition
related costs of $1.2 million. The common stock portion of the
consideration was valued at $30.8 million, the fair value on the date prior
to the announcement. The stock options were valued at $4.0 million using
the Black-Scholes option pricing model.
Also in May 1999, the Company acquired the wireline assets of USN
Communications, Inc., which was a CLEC that operated on a resale basis, for
a cash payment of $26.4 million, warrants to purchase 563,000 shares of the
Company's common stock at a price of $13.33 per share and 225,000 shares at
a price of $22.22 per share, and a potential contingent cash payment to be
paid in July 2000 which is capped at $58.6 million. The contingent payment
is payable only if the USN assets meet or exceed operating performance
thresholds. The Company does not expect the actual payment in July 2000 to
be significant. The warrants were valued at $9.1 million, the fair value on
the date of issuance. In addition, the Company incurred acquisition related
costs of $1.0 million.
These acquisitions have been accounted for as purchases, and, accordingly,
the net assets and results of operations of the acquired businesses have
been included in the consolidated financial statements from the dates of
acquisition. The aggregate purchase price of $91.3 million exceeded the
fair value of the net tangible assets acquired by $75.6 million, which was
allocated as follows: $13.3 million to customer lists, $1.5 million to
other intangibles and $60.8 million to goodwill.
In April and June 1998, CCPR acquired the stock of Digicom, Inc. and
certain operating assets and related liabilities of Jeff Rand Corp. (known
as the Wireless Outlet) and OCOM Corporation. CCPR contributed these
businesses to the Company. These acquisitions were accounted for as
purchases by CCPR, and, accordingly, the net assets and results of
operations of the acquired businesses have been included in the
consolidated financial statements from the dates of acquisition. The
contribution of the assets from CCPR to the Company was accounted for at
historical cost in a manner consistent with a transfer of entities under
common control which is similar to that used in a "pooling of interests".
The Company's financial statements include the results of the contributed
companies for all periods owned by CCPR. In November 1998, a wholly-owned
subsidiary of the Company acquired substantially all of the assets and
certain liabilities of Stratos Internet Group, Inc. ("Stratos"), an ISP in
the Cleveland-Akron, Ohio area. This acquisition has been accounted for as
a purchase, and, accordingly, the net assets and results of operations of
Stratos have been included in the consolidated financial statements from
the date of acquisition. The aggregate purchase price of $5.2 million
exceeded the fair value of net tangible assets acquired by $4.4 million,
which was allocated as follows: $100,000 to noncompetition agreements and
$4.3 million to goodwill.
F-15
<PAGE> 57
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
4. ACQUISITIONS (CONTINUED)
The pro forma unaudited consolidated results of operations for the years
ended December 31, 1999 and 1998 assuming consummation of the acquisitions
and receipt of the capital contributions from CCPR as of January 1, 1998
are as follows. The pro forma net (loss) and basic and diluted net (loss)
per share do not give effect to interest income that may have been earned
had the $150,000,000 cash capital contribution from CCPR been made on
January 1, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
---------------------------------
<S> <C> <C>
Total revenue $ 97,855,000 $148,174,000
Net (loss) (138,458,000) (233,267,000)
Basic and diluted net (loss) per share (3.74) (6.23)
</TABLE>
A significant component of the pro forma results is associated with the
acquisition of certain assets of USN. Although USN quickly developed a
large customer list and revenue base in 1997 and 1998, it had difficulties
under its previous management providing services, including billing,
customer care and other operational areas, and filed for bankruptcy in
February 1999. Since the acquisition, we have been focusing on improving
these operations, and have been successful in many areas. However, we did
not actively sell additional lines in these markets in 1999 because we were
not fully satisfied with the quality of the operations. Consequently, and
consistent with our due diligence, transaction structure and purchase
price, revenues associated with the USN assets have declined significantly
since our acquisition, and additional declines may continue as customers
leave or "churn" off the service.
5. LMDS LICENSE COSTS
Cortelyou Communications Corp. ("Cortelyou"), a wholly-owned subsidiary of
the Company, was the successful bidder for 15 Block A LMDS licenses in
Ohio. The LMDS licenses were acquired for an aggregate of $25,366,000,
which includes costs incurred of $125,000. LMDS frequencies are expected to
be used for the provision of voice, data, video and Internet services to
businesses and homes in competition with ILECs and/or cable television
operators. The FCC has allocated two blocks of frequencies to be licensed
in each of the 493 Basic Trading Areas in the United States and its
territories based on an auction that ended in March 1998.
F-16
<PAGE> 58
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
6. FIXED ASSETS
Fixed assets consist of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
---------------------------------
<S> <C> <C>
Operating equipment $50,290,000 $ 720,000
Computer hardware and software 17,455,000 2,450,000
Other equipment 9,300,000 987,000
Construction-in-progress 24,681,000 5,000
---------------------------------
101,726,000 4,162,000
Accumulated depreciation (11,107,000) (580,000)
---------------------------------
$90,619,000 $3,582,000
=================================
</TABLE>
7. ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
---------------------------------
<S> <C> <C>
Payroll and related $2,903,000 $1,263,000
Professional fees 2,161,000 527,000
Taxes, including income taxes 6,089,000 1,246,000
Accrued equipment purchases 13,455,000 -
Other 7,607,000 1,211,000
---------------------------------
$32,215,000 $4,247,000
=================================
</TABLE>
8. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
---------------------------------
<S> <C> <C>
6% Convertible Subordinated Notes $175,000,000 $ -
Working capital promissory note, interest at 8.5% 3,077,000 -
Note payable for equipment, interest at 12.75% 6,238,000 -
Other 283,000 363,000
---------------------------------
184,598,000 363,000
Less current portion 5,280,000 80,000
---------------------------------
$179,318,000 $ 283,000
=================================
</TABLE>
F-17
<PAGE> 59
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
8. NOTES PAYABLE (CONTINUED)
In October 1999, the Company issued $175,000,000 principal amount of 6%
Convertible Subordinated Notes due 2006 (the "Convertible Notes"). Interest
on the Convertible Notes is payable semiannually on April 1 and October 1
of each year, commencing April 1, 2000. The Convertible Notes are unsecured
obligations convertible into common stock prior to maturity at a conversion
price of $27.39 per share, subject to adjustment. There are approximately
6.4 million shares of common stock reserved for issuance upon conversion of
the Convertible Notes. The Convertible Notes are redeemable, in whole or in
part, at the option of the Company, at any time on or after October 1,
2002, at a redemption price of 103.429% that declines annually to 100% in
2006, in each case together with accrued and unpaid interest to the
redemption date. The Company incurred $6,935,000 in fees and expenses in
connection with the issuance of the Convertible Notes, which is included in
deferred financing costs.
MegsINet originally borrowed $4,000,000 from Ascend Communications, Inc.
("Ascend") under a working capital promissory note dated August 1998.
MegsINet is required to make monthly principal and interest payments of
$148,000 through January 2002. The Company issued a warrant to Ascend to
purchase approximately 29,000 shares of the Company's common stock at
$13.75 per share in connection with the promissory note.
In 1998, MegsINet entered into an agreement with Cisco Systems Capital
Corporation ("Cisco"), whereby MegsINet can purchase operating equipment
under a promissory note. Monthly payments of principal and interest
commenced in 1999, MegsINet paid an aggregate of $3,164,000. MegsINet is
required to make monthly principal and interest payments that decline each
month from $366,000 beginning in January 2000 through September 2001. The
Company has guaranteed the obligations of MegsINet under the promissory
note.
The Company issued a note payable in the amount of $362,000 in connection
with the Stratos acquisition. Interest on the note accrues at 5.542% per
annum. The note is payable in twelve consecutive quarterly payments of
principal and interest of $33,000 which commenced in May 1999 and is
collateralized by the assets acquired from Stratos.
The aggregate principal amounts of notes payable scheduled for repayment
are as follows:
<TABLE>
<S> <C>
Year ended December 31,
2000 $5,280,000
2001 4,229,000
2002 89,000
2003 -
2004 -
Thereafter 175,000,000
--------------
$184,598,000
==============
</TABLE>
F-18
<PAGE> 60
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
consolidated balance sheets approximate fair value.
Notes payable: The fair value of the Company's convertible notes is based
on the quoted market price. The fair value of the Company's other notes
payable are estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 86,685 $ 86,685 $26,161 $26,161
Notes payable
Convertible notes 175,000 273,000 - -
Ascend note 3,077 2,721 - -
Cisco note 6,238 5,561 - -
Other 283 248 363 301
</TABLE>
10. LEASES
The Company has capital leases for certain of its operating equipment.
Leased property included in operating equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
----------------------------
<S> <C> <C>
Operating equipment $33,941,000 $258,000
Accumulated depreciation 5,901,000 7,000
----------------------------
$28,040,000 $251,000
============================
</TABLE>
F-19
<PAGE> 61
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
10. LEASES (CONTINUED)
Future minimum annual payments under these leases at December 31, 1999 are
as follows:
<TABLE>
<C> <C>
Year Ended December 31,
2000 $16,092,000
2001 13,053,000
2002 2,477,000
2003 19,000
--------------
Total minimum lease payments 31,641,000
Less amount representing interest (at rates ranging
from 8.5% to 26.44%) 3,230,000
--------------
Present value of net minimum obligations 28,411,000
Current portion 13,847,000
--------------
$14,564,000
==============
</TABLE>
As of December 31, 1999, the Company had leases for office space and
equipment which extend through 2013. Total rent expense for the year ended
December 31, 1999, for the period from April 1, 1998 (date operations
commenced) to December 31, 1998, for the period from January 1, 1998 to May
31, 1998 and for the year ended December 31, 1997 under operating leases
was $5,151,000, $354,000, $98,000 and $131,000, respectively.
Future minimum annual lease payments under noncancellable operating leases
at December 31, 1999 are as follows: $7,967,000 (2000); $6,682,000 (2001);
$5,832,000 (2002); $5,384,000 (2003); $5,005,000 (2004) and $19,481,000
thereafter.
11. NON-CASH COMPENSATION
The non-cash compensation charge of $1,056,000 in 1999 is recorded in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," related to a change in employee stock option agreements.
The non-cash compensation charge of $4,586,000 in 1998 is a recorded in
accordance with APB Opinion No. 25, as a one time charge related to the
issuance of the Company's warrants and stock options to holders of CCPR's
stock options in connection with the Company's distribution to CCPR's
shareholders.
F-20
<PAGE> 62
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
12. RELATED PARTY TRANSACTIONS
Some of the officers and directors of the Company are also officers or
directors of NTL Incorporated ("NTL"). NTL provides the Company with
management, financial, legal and technical services, access to office space
and equipment and use of supplies. Amounts charged to the Company by NTL
consist of salaries and direct costs allocated to the Company where
identifiable, and a percentage of the portion of NTL's corporate overhead
which cannot be specifically allocated to NTL (which is agreed upon by the
Board of Directors of NTL and the Company). NTL's charges to the Company
commenced in October 1998. It is not practicable to determine the amounts
of these expenses that would have been incurred had the Company operated as
an unaffiliated entity. In the opinion of management, this allocation
method is reasonable. In 1999 and 1998, NTL charged the Company $2,330,000
and $313,000, respectively, which is included in corporate expenses.
The Company provides NTL with access to office space and equipment and the
use of supplies. In the fourth quarter of 1999, the Company began charging
NTL a percentage of the Company's office rent and supplies expense. It is
not practicable to determine the amounts of these expenses that would have
been incurred had the Company operated as an unaffiliated entity. In the
opinion of management, this allocation method is reasonable. In 1999, the
Company charged NTL $62,000, which reduced corporate expenses.
A subsidiary of the Company provides billing and software development
services to subsidiaries of NTL. The Company charges an amount in excess of
its costs to provide these services. General and administrative expenses
were reduced by $800,000, $275,000, $138,000, and $217,000 for the year
ended December 31, 1999, the period from April 1, 1998 (date operations
commenced) to December 31, 1998, the period from January 1, 1998 to May 31,
1998 and the year ended December 31, 1997, respectively, as a result of
these charges.
At December 31, 1999, due from affiliates was comprised of $195,000 due
from NTL. At December 31, 1998, due from affiliates included $128,000 due
from CCPR and $1,826,000 due from NTL.
13. 401(k) PLAN
The Company sponsors a 401(k) Plan in which all full-time employees who
have completed 90 days of employment and are 21 years of age may
participate. The Company's matching contribution is determined annually by
the Board of Directors. Participants may make salary deferral contributions
of 1% to 15% of their compensation not to exceed the maximum allowed by
law. The expense for the year ended December 31, 1999, the period from
April 1, 1998 (date operations commenced) to December 31, 1998, the period
from January 1, 1998 to May 31, 1998 and the year ended December 31, 1997
was $350,000, $103,000, $29,000 and $126,000, respectively.
F-21
<PAGE> 63
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
14. SHAREHOLDERS' EQUITY
STOCK SPLITS
In August 1999, the Company declared a 3-for-2 stock split by way of a
stock dividend, which was paid on September 2, 1999. In January 2000, the
Company declared a 3-for-2 stock split by way of a stock dividend, which
was paid on February 2, 2000. The consolidated financial statements and the
notes thereto give retroactive effect to the stock splits.
SHAREHOLDER RIGHTS PLAN
The Rights Agreement provides that .44 of a Right will be issued with each
share of common stock issued on or after the date of distribution. The
Rights become exercisable upon the occurrence of certain potential takeover
events and will expire in December 2010 unless previously redeemed by the
Company. When exercisable, each Right entitles the owner to purchase from
the Company 1/100 of a share of Series A Junior Participating Preferred
Stock ("Series A Preferred Stock") at a purchase price of $100.
The Series A Preferred Stock will be entitled to a minimum preferential
quarterly dividend payment of $.01 per share and will be entitled to an
aggregate dividend of 225 times the dividend, if any, declared per share of
common stock. In the event of liquidation, the holders of Series A
Preferred Stock will be entitled to a minimum preferential liquidation
payment of $100 per share and will be entitled to an aggregate payment of
225 times the payment made per share of the common stock. Each share of
Series A Preferred Stock will have 225 votes and will vote together with
the common stock. In the event of any merger, consolidation or other
transaction in which shares of common stock are changed or exchanged, each
share of Series A Preferred Stock will be entitled to receive 225 times the
amount received per share of common stock. The rights are protected by
customary antidilution provisions.
The 1,000,000 authorized shares of Series Preferred Stock are designated
Series A Preferred Stock. No shares of Series A Preferred Stock are issued
or outstanding.
WARRANTS
The Company had the following warrants outstanding as of December 31, 1999:
(1) warrants to purchase an aggregate of 29,000 shares of common stock at
$13.75 per share issued in 1999 that expire in August 2008, (2) warrants to
purchase an aggregate of 225,000 shares of common stock at $22.22 per share
issued in 1999 that expire in May 2004 and (3) warrants to purchase an
aggregate of 563,000 shares of common stock at $13.33 per share issued in
1999 that expire in May 2002. None of these warrants were exercised in
1999.
F-22
<PAGE> 64
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
14. SHAREHOLDERS' EQUITY (CONTINUED)
DISTRIBUTION WARRANTS AND STOCK OPTIONS
In connection with the distribution of the Company to CCPR's shareholders,
the Company issued warrants to purchase shares of common stock to holders
of CCPR stock options who elected to receive warrants as follows: (1)
warrants to purchase an aggregate of 4,303,000 shares of common stock at an
exercise price of $5.86 per share which expire in 2005, (2) warrants to
purchase an aggregate of 8,000 shares of common stock at an exercise price
of $5.86 per share which expire in 2003 and (3) warrants to purchase an
aggregate of 1,842,000 shares of common stock at an exercise price of $7.03
which expire in 2005. As of December 31, 1999, warrants to purchase an
aggregate of 47,000 shares of common stock at an exercise price of $5.86
per share which expire in 2005 remain outstanding.
There are 13,500,000 shares of common stock authorized for issuance under
the 1998 CoreCom Limited Stock Option Plan and 5,625,000 shares of common
stock authorized for issuance under the 1999 CoreCom Limited Stock Option
Plan (together the "Plans"). The Plans provide that incentive stock
options be granted at the fair market value of the Company's common stock
on the date of grant, and nonqualified stock options be granted at a price
determined by the Compensation and Option Committee. Options are generally
exercisable as to 20% of the shares subject thereto on the date of grant
and become exercisable as to an additional 20% of the shares subject
thereto on each January 1 thereafter, while the optionee remains an
employee of the Company. Options generally expire ten years after the date
of the grant.
In connection with the distribution of the Company to CCPR's shareholders,
the Company issued approximately 1,877,000 options to purchase shares of
the Company's common stock to holders of CCPR stock options who elected to
receive options.
Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123, and has been determined as if the Company had accounted
for its employee warrants and stock options under the fair value method of
that Statement. The fair value for these warrants and options was estimated
at the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions for 1999 and 1998: risk-free
interest rate of 6.81% and 5.02%, respectively, dividend yield of 0%,
volatility factor of the expected market price of the Company's common
stock of .465 and .810, respectively, and a weighted-average expected life
of the warrants and options of 10 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's distribution
warrants and stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its distribution warrants and stock options.
F-23
<PAGE> 65
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
14. SHAREHOLDERS' EQUITY (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
distribution warrants and options is amortized to expense over the options'
vesting periods. Following is the Company's pro forma information:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM APRIL 1, 1998
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------------------
<S> <C> <C>
Pro forma net (loss) $(128,795,000) $(48,015,000)
Pro forma net (loss) per share - basic and diluted $(3.77) $(1.62)
</TABLE>
A summary of the Company's distribution warrants and stock option activity
and related information for the year ended December 31, 1999 and for the
period from April 1, 1998 (date operations commenced) to December 31, 1998
follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------
NUMBER OF WEIGHTED- NUMBER OF WEIGHTED-
WARRANTS AND AVERAGE WARRANTS AVERAGE
OPTIONS EXERCISE PRICE AND OPTIONS EXERCISE PRICE
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding - beginning of period 9,765,000 $ 5.51 - $ -
Granted 7,925,000 19.56 9,767,000 5.51
Exercised 5,606,000 6.27 2,000 5.86
Forfeited 1,330,000 6.27 - -
----------- ---------
Outstanding - end of period 10,754,000 $15.37 9,765,000 $5.51
=========== =========
Exercisable at end of period 3,438,000 $10.11 7,747,000 $5.42
=========== =========
</TABLE>
Weighted-average fair value of distribution warrants and options,
calculated using the Black-Scholes option pricing model, granted during
1999 and 1998 is $14.28 and $4.33, respectively.
The following table summarizes the status of the distribution warrants and
stock options outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------------------------------------
WEIGHTED-
REMAINING WEIGHTED- WEIGHTED-
RANGE OF NUMBER OF CONTRACTUAL AVERAGE NUMBER OF AVERAGE
EXERCISE PRICES OPTIONS LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.02 to $3.03 1,235,000 7.6 Years $0.635 1,136,000 $0.505
$5.28 to $7.33 2,310,000 8.3 Years $5.858 922,000 $5.853
$14.78 to $18.45 193,000 9.4 Years $18.442 39,000 $18.442
$18.67 to $22.45 6,768,000 9.4 Years $20.714 1,291,000 $20.627
$24.92 to $26.25 169,000 9.7 Years $24.921 34,000 $24.921
$38.75 79,000 10.0 Years $38.750 16,000 $38.750
- ---------------------------------------------------------------------------------------------------------------------
10,754,000 3,438,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE> 66
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
15. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM APRIL 1, 1998
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
1999 1998
-------------------------------------
<S> <C> <C>
Current:
Federal $106,000 $ -
State and local 625,000 440,000
-------------------------------------
Total current 731,000 440,000
-------------------------------------
Deferred:
Federal - -
State and local - -
-------------------------------------
Total deferred - -
-------------------------------------
$731,000 $440,000
=====================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-------------------------------
<S> <C> <C>
Deferred tax assets:
Depreciation $ 887,000 $ (58,000)
Net operating losses 35,444,000 5,419,000
Allowance for doubtful accounts 1,599,000 301,000
Amortization of goodwill 653,000 24,000
Accrued expenses 10,359,000 -
Other 200,000 -
-------------------------------
49,142,000 5,686,000
Valuation allowance for deferred tax assets (49,142,000) (5,686,000)
-------------------------------
Net deferred tax assets $ - $ -
===============================
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $88,000,000 for federal income tax purposes that begin to
expire in 2018. The Company became eligible to file a consolidated federal
income tax return in July 1999. Losses incurred prior to July 1999 may only
be utilized by the subsidiary that generated the loss. The deferred tax
assets have been fully offset by a valuation allowance due to the
uncertainty of realizing such tax benefit.
F-25
<PAGE> 67
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
15. INCOME TAXES (CONTINUED)
The reconciliation of income taxes computed at U.S. federal statutory rates
to income tax expense is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM APRIL 1,
1998 (DATE
OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
1999 1998
-----------------------------------
<S> <C> <C>
Benefit at federal statutory rate (35%) $(35,978,000) $(5,535,000)
State and local income taxes 625,000 440,000
Expenses not deductible for tax purposes 2,160,000 1,623,000
Foreign income not subject to U.S. tax (399,000) (846,000)
U.S. losses with no benefit 34,323,000 4,758,000
-----------------------------------
$ 731,000 $ 440,000
===================================
</TABLE>
16. COMMITMENTS AND CONTINGENT LIABILITIES
As of December 31, 1999, the Company had purchase commitments of
approximately $41,000,000 outstanding.
The Company is involved in various disputes, arising in the ordinary course
of its business, which may result in pending or threatened litigation. None
of these matters are expected to have a material adverse effect on the
Company's financial position, results of operations or cash flows.
17. SUBSEQUENT EVENTS (UNAUDITED)
On March 10, 2000, the Company announced that it had entered into a
definitive agreement to acquire ATX Telecommunications Services, Inc.
("ATX"), which is a facilities based CLEC and integrated communications
provider serving the Mid-Atlantic states. The Company will pay total
consideration consisting of (a) approximately 12.4 million shares of the
Company's common stock, (b) $250 million of 3% convertible preferred stock
and (c) $150 million in cash, of which up to $70 million, at the Company's
option, may be paid in senior notes with a two-year maturity. The
convertible preferred stock will be convertible into common stock at $44.36
per share. Under the agreement's cap provisions, the shares of common stock
to be issued will be reduced if the Company's stock price at closing
exceeds $46.38 per share, and the number of common shares underlying the
convertible preferred stock will be reduced if the Company's stock price at
closing exceeds $44.36 per share. The transaction is subject to regulatory
and shareholder approval and other customary closing conditions.
F-26
<PAGE> 68
CoreComm Limited and Subsidiaries
and its Predecessor OCOM Corporation Telecoms Division
Notes to Consolidated Financial Statements (continued)
17. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
On March 13, 2000, the Company and Voyager.net, Inc. ("Voyager.net")
announced a definitive agreement to merge in a stock and cash transaction.
Voyager.net is the largest full-service Internet communications company in
the Midwest, and is rapidly expanding into DSL delivery of its services.
Under the agreement, Voyager.net shareholders will receive 0.292 shares of
the Company's common stock and $3 in cash for each share of Voyager.net
common stock (an aggregate of approximately 9.2 million shares and
approximately $95 million in cash). Under the agreement's collar
provisions, the shares of common stock issued will be reduced if the
Company's stock price at closing exceeds $57 per share, and increased if
the Company's common stock price at closing is below $41 per share. If the
Company's stock price at closing is below $33 per share, there would be no
further adjustment to the number of shares of the Company's common stock
issued and Voyager.net would have the right to terminate the transaction,
subject to the Company's right to adjust further the shares issued. The
transaction is subject to shareholder approval and other customary closing
conditions. Holders of over a majority of the voting shares of Voyager.net
have entered into an agreement with the Company to vote in favor of the
transaction.
In March 2000, the Compensation and Option Committee of the Board of
Directors approved the issuance of options in the Company to various
employees to acquire 2.7 million shares of the Company's common stock at an
exercise price of 30% of the fair market value of the Company's common
stock on the date of the grant. In accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees," the Company will record a
non-cash compensation expense of approximately $44.8 million in March 2000
and a non-cash deferred expense of approximately $48.5 million. The
Company will charge the deferred expense to non-cash compensation expense
on a straight-line basis over the vesting period of the stock options as
follows: $15 million in 2000, $20 million in 2001, $11.6 million in 2002,
$1.8 million in 2003 and $0.1 million in 2004.
F-27
<PAGE> 69
CoreComm Limited and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------
ADDITIONS
---------------------------
(1) (2)
---------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS - BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1999:
Allowance for doubtful accounts $742,000 $3,241,000 $ - $(34,000) (a) $3,949,000
For the period from April 1, 1998
(date operations commenced) to
December 31, 1998:
Allowance for doubtful accounts $ - $501,000 - $241,000 (b) $742,000
</TABLE>
(a) Uncollectible accounts written off, net of recoveries, of $24,688,000
offset by $24,654,000 allowance for doubtful accounts as of acquisition
date from business combinations.
(b) Uncollectible accounts written off, net of recoveries, of $117,000 offset
by $358,000 allowance for doubtful accounts as of acquisition date from
business combinations.
F-28
<PAGE> 70
OCOM Corporation Telecoms Division
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------
ADDITIONS
---------------------------
(1) (2)
---------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS - BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the period from January 1, 1998
to May 31, 1998:
Allowance for doubtful accounts $46,000 $92,000 $ - $60,000 (a) $78,000
For the year ended December 31, 1997:
Allowance for doubtful accounts $ - $46,000 $ - $ - $46,000
</TABLE>
(a) Uncollectible accounts written-off, net of recoveries.
F-29
<PAGE> 1
Exhibit 2.2
RECAPITALIZATION AGREEMENT AND
PLAN OF MERGER
By and Among
ATX Telecommunications Services, Inc.,
Thomas Gravina, Debra Buruchian, Michael Karp and The Florence Karp Trust
and
CoreComm Limited
Dated as of
March 9, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
I. THE MERGER.................................................................................... 1
1.1 The Formation of ATX Merger Sub, CoreComm Merger Sub and the Merger................. 1
1.2 The Recapitalization................................................................ 3
1.3 Conversion of CoreComm Common Stock................................................. 9
1.4 Exchange of Certificates............................................................ 10
1.5 Directors and Officers of Surviving Corporation..................................... 12
1.6 Directors and Officers of ATX....................................................... 12
II. CLOSING....................................................................................... 12
2.1 Closing............................................................................. 12
III. REPRESENTATIONS AND WARRANTIES OF
ATX AND ATX MERGER SUB...................................................................... 13
3.1 Organization, Etc................................................................... 13
3.2 Authorization....................................................................... 14
3.3 Capitalization...................................................................... 15
3.4 No Violation........................................................................ 16
3.5 Financial Statements................................................................ 17
3.6 No Undisclosed or Contingent Liabilities............................................ 17
3.7 Absence of Certain Changes.......................................................... 18
3.8 Litigation, Orders.................................................................. 19
3.9 Title to Properties; Encumbrances................................................... 19
3.10 Compliance with Law; Licenses....................................................... 20
3.11 Taxes............................................................................... 21
3.12 Consents and Approvals.............................................................. 22
3.13 Contracts and Commitments........................................................... 23
3.14 Insurance........................................................................... 24
3.15 Certain Interests................................................................... 24
3.16 Intellectual Property............................................................... 24
3.17 Employee Benefit Plans.............................................................. 25
3.18 Labor Matters....................................................................... 26
3.19 Environmental Protection............................................................ 26
3.20 Brokers or Finders.................................................................. 26
3.21 Accounting and Tax Matters.......................................................... 27
3.22 Registration Statement; Proxy Statement/Prospectus.................................. 27
3.23 Non-Competition Agreements.......................................................... 27
3.24 Customers........................................................................... 27
3.25 Legal Opinion....................................................................... 27
3.26 Full Disclosure..................................................................... 27
3.27 NO OTHER REPRESENTATIONS OR WARRANTIES.............................................. 28
IV. REPRESENTATIONS AND WARRANTIES OF CORECOMM.................................................... 28
4.1 Organization, Etc................................................................... 28
4.2 Authorization....................................................................... 28
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
4.3 Capitalization...................................................................... 29
4.4 No Violation........................................................................ 29
4.5 SEC Filings; Financial Statements................................................... 30
4.6 Absence of Certain Changes.......................................................... 30
4.7 Consents and Approvals.............................................................. 30
4.8 Brokers or Finders.................................................................. 31
4.9 Accounting and Tax Matters.......................................................... 31
4.10 Registration Statement; Proxy Statement/Prospectus.................................. 31
4.11 Fairness Opinion.................................................................... 31
4.12 Legal Opinion....................................................................... 31
4.13 NO OTHER REPRESENTATIONS OR WARRANTIES.............................................. 32
V. OBLIGATIONS OF ATX AND CORECOMM............................................................... 32
5.1 Other Transactions.................................................................. 32
5.2 Supplemental Disclosure............................................................. 32
5.3 Conduct of Business................................................................. 32
5.4 Confidentiality..................................................................... 34
5.5 Proxy Statement/Prospectus; Registration Statement.................................. 34
5.6 Stockholders' Meeting............................................................... 35
5.7 Cooperation; Regulatory Filings..................................................... 35
5.8 Public Announcements................................................................ 37
5.9 Effect of Due Diligence............................................................. 37
5.10 Letters from Accountants; New Financial Statements.................................. 38
5.11 Nasdaq Application.................................................................. 38
5.12 Stock Plans and Options............................................................. 38
5.13 Access and Investigations........................................................... 39
5.14 Communications Licenses and Authorizations.......................................... 39
5.15 FCC/State PUC Applications.......................................................... 39
5.16 Stockholders Agreement.............................................................. 40
5.17 Transition Services Agreement....................................................... 40
5.18 Reincorporation and Acquisition..................................................... 40
5.19 Termination of Agreements........................................................... 40
5.20 Escrow Agreements................................................................... 41
5.21 Phantom Unit Plan................................................................... 41
5.22 Name................................................................................ 41
5.23 Existing Stockholders' Agreement.................................................... 41
5.24 Negotiation of Term Sheets.......................................................... 41
5.25 Operating Subsidiaries.............................................................. 41
5.26 Subchapter S Election............................................................... 41
5.27 Assignment of Reimbursement Rights.................................................. 41
5.28 Certificate of Incorporation, Etc................................................... 41
5.29 CoreComm Transactions............................................................... 42
5.30 Protective Agreements............................................................... 42
5.31 Key Employee Employment Agreements.................................................. 42
</TABLE>
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5.32 Gravina and Buruchian Employment Agreements......................................... 42
5.34 Working Capital Loans............................................................... 42
VI. CONDITIONS TO OBLIGATIONS OF CORECOMM......................................................... 42
6.1 Representations and Warranties...................................................... 42
6.2 Performance......................................................................... 43
6.3 No Proceeding or Litigation......................................................... 43
6.4 No Injunction....................................................................... 43
6.5 Officer's Certificates.............................................................. 43
6.6 Consents and Approvals.............................................................. 43
6.7 HSR Act............................................................................. 43
6.8 No Material Adverse Change.......................................................... 43
6.9 Stockholder Approval................................................................ 44
6.10 FCC/State PUC Consents.............................................................. 44
6.11 Registration Statement.............................................................. 44
6.12 Transition Services Agreement....................................................... 44
6.13 Resignations........................................................................ 44
6.14 The GAAP Financial Statements of ATX................................................ 44
6.15 Stockholders' Agreement............................................................. 44
6.16 NASDAQ Listing...................................................................... 44
6.17 Formation of ATX Merger Sub......................................................... 44
6.18 Escrow Agreement.................................................................... 44
6.19 Opinions of Counsel................................................................. 44
6.20 Corporate Governance................................................................ 45
6.21 Necessary Consents.................................................................. 45
6.22 Existing Stockholders' Agreement.................................................... 45
6.23 Employment Matters.................................................................. 45
VII. CONDITIONS TO OBLIGATIONS OF ATX.............................................................. 45
7.1 Representations and Warranties...................................................... 45
7.2 Performance......................................................................... 46
7.3 No Proceeding or Litigation......................................................... 46
7.4 No Injunction....................................................................... 46
7.5 Officer's Certificate............................................................... 46
7.6 Consents and Approvals.............................................................. 46
7.7 HSR Act............................................................................. 46
7.8 Registration Rights Agreement....................................................... 46
7.9 FCC/State PUC Consents.............................................................. 46
7.10 No Material Adverse Change.......................................................... 47
7.11 Registration Statement.............................................................. 47
7.12 Tax Opinion......................................................................... 47
7.13 Letters of Credit................................................................... 47
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VIII. TERMINATION OF AGREEMENT..................................................................... 47
8.1 Termination of Agreement............................................................ 47
8.2 Procedure Upon Termination.......................................................... 48
IX. INDEMNIFICATION............................................................................... 48
9.1 Indemnification by ATX Stockholders................................................. 48
9.2 Procedures for Indemnification...................................................... 49
9.3 Cooperation in Defense.............................................................. 50
9.4 Limitations on Indemnification by ATX Stockholders.................................. 50
9.5 Mitigation of Losses................................................................ 51
9.6 Exclusivity......................................................................... 51
9.7 Indemnification Escrow.............................................................. 51
X. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................................................... 52
10.1 ATX, ATX Merger Sub and ATX Stockholders............................................ 52
10.2 CoreComm............................................................................ 52
XI. MISCELLANEOUS................................................................................. 52
11.1 Expenses............................................................................ 52
11.2 Further Assurances.................................................................. 52
11.3 Parties in Interest................................................................. 52
11.4 Entire Agreement, Amendments and Waiver............................................. 52
11.5 Interpretation...................................................................... 53
11.6 Notices............................................................................. 53
11.7 Governing Law....................................................................... 54
11.8 Submission to Jurisdiction; Waivers................................................. 54
11.9 Third Parties....................................................................... 54
11.10 Severability........................................................................ 54
11.11 Counterparts........................................................................ 54
XII. DEFINED TERMS................................................................................. 55
12.1 Location of Certain Defined Terms................................................... 55
12.2 Other Defined Terms................................................................. 58
XIII. ATX STOCKHOLDER COVENANTS.................................................................... 59
13.1 No Transfers........................................................................ 59
13.2 Cooperation; No Solicitation........................................................ 59
</TABLE>
Exhibit A - Convertible Preferred Stock Term Sheet
Exhibit B - Form of Short Term Senior Notes Term Sheet
Exhibit C - Form of Stockholders Agreement
Exhibit D - Form of Transition Services Agreement
Exhibit E - Lease Amendments
Exhibit F - Phantom Unit Plan Matters
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(Continued)
PAGE
Exhibit G - Registration Rights Agreement
Exhibit H - Required Consents
Exhibit I - Employment Issues
Exhibit J - Collar Stock Price Example
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<PAGE> 7
RECAPITALIZATION AGREEMENT AND PLAN OF MERGER
RECAPITALIZATION AGREEMENT AND PLAN OF MERGER, dated as of March 9,
2000, by and among ATX Telecommunications Services, Inc., a Delaware corporation
("ATX"), CoreComm Limited, a Bermuda corporation ("CoreComm"), Thomas Gravina
("Gravina"), Debra Buruchian ("Buruchian"), Michael Karp ("Karp") and The
Florence Karp Trust (the "Karp Trust" and, collectively with Gravina, Buruchian
and Karp, the "ATX Stockholders").
RECITALS
WHEREAS, the Boards of Directors of ATX, and CoreComm, respectively,
deem it advisable and in the best interests of ATX, CoreComm and their
respective stockholders that ATX and CoreComm combine in order to advance the
long-term business interests of ATX and CoreComm;
WHEREAS, the combination of ATX and CoreComm shall be effected by the
terms of this Recapitalization Agreement and Plan of Merger (the "Agreement")
through the Merger (of CoreComm Merger Sub (as defined herein) and ATX Merger
Sub (as defined herein)) and the Recapitalization (each as defined herein) of
ATX; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
and Recapitalization shall qualify as exchanges within the meaning of Section
351 of the Internal Revenue Code of 1986, as amended (the "Code") and as
reorganizations within the meaning of Section 368(a) of the Code.
WHEREAS, the Boards of Directors of ATX and CoreComm have approved this
Agreement and each of the documents required to be executed in connection with
this Agreement to which it is a party.
Accordingly, in consideration of the representations, warranties,
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
I. THE MERGER
1.1 The Formation of ATX Merger Sub, CoreComm Merger Sub and the
Merger.
(a) As promptly as practicable following the execution of
this Agreement, ATX shall cause to be organized for the sole purpose of
effectuating the Merger contemplated herein a corporation organized under the
laws of the State of Delaware ("ATX Merger Sub"). As promptly as practicable
following the execution of this Agreement, CoreComm shall cause to be organized
for the sole purpose of effecting the Domestication Merger (as defined in
Section 1.1(d) below) and the Merger contemplated herein, a corporation
organized under the laws of the State of Delaware ("CoreComm Merger Sub"). The
respective certificates of incorporation and Bylaws of each of ATX Merger Sub
and CoreComm Merger Sub shall be in such forms as shall be mutually determined
by ATX and CoreComm as soon as practicable following the execution of this
<PAGE> 8
Agreement and the authorized capital stock of each of ATX Merger Sub and
CoreComm Merger Sub shall initially consist of 100 shares of common stock, par
value $0.01 per share. All of the outstanding shares of ATX Merger Sub shall be
issued to ATX at a price of $1.00 per share and all of the outstanding shares of
CoreComm Merger Sub shall be issued to CoreComm at a price of $1.00 per share.
(b) As promptly as practicable following the execution of
this Agreement, ATX (with respect to ATX Merger Sub) and CoreComm (with respect
to CoreComm Merger Sub) shall take all requisite action to designate the
directors and officers of ATX Merger Sub and CoreComm Merger Sub and take such
steps as may be necessary or appropriate to complete the organization of ATX
Merger Sub and CoreComm Merger Sub. ATX shall cause the directors of ATX Merger
Sub to ratify and approve this Agreement. CoreComm shall cause the directors of
CoreComm Merger Sub to ratify and approve this Agreement.
(c) As promptly as practicable following the organization of
ATX Merger Sub, ATX, as the sole stockholder of ATX Merger Sub, shall cause ATX
Merger Sub to adopt this Agreement and to perform its obligations under this
Agreement. As promptly as practicable following the organization of CoreComm
Merger Sub, CoreComm, as the sole stockholder of CoreComm Merger Sub shall cause
CoreComm Merger Sub to adopt this Agreement and to perform its obligations under
this Agreement. As promptly as practicable after the organization of ATX Merger
Sub and CoreComm Merger Sub, the parties shall cause this Agreement to be
amended to add ATX Merger Sub and CoreComm Merger Sub as parties hereto. Such
amendment shall provide for the making by ATX Merger Sub of those
representations and warranties equivalent to those set forth in Article 3 hereof
that apply to ATX Merger Sub, and covenants and obligations equivalent to those
set forth in Article 5 hereof that apply to ATX Merger Sub, and ATX Merger Sub
and CoreComm Merger Sub shall each become a constituent corporation in the
Merger.
(d) Immediately prior to the Merger, CoreComm shall
amalgamate and merge with and into CoreComm Merger Sub (the "Domestication
Merger"), subject to compliance with applicable provisions of the Delaware
General Corporation Law (the "DGCL") and the laws of Bermuda. As a result of the
Domestication Merger, each issued and outstanding share of CoreComm Common Stock
shall become and represent one share of common stock, par value $.01 per share
("CoreComm Merger Sub Common Stock"), of CoreComm Merger Sub, and the
independent existence of CoreComm shall cease. Prior to the consummation of the
Domestication Merger, CoreComm, as sole stockholder of CoreComm Merger Sub,
shall adopt this Agreement. Unless the context otherwise requires, all
references in this Agreement to CoreComm shall be deemed to mean CoreComm prior
to the consummation of the Domestication Merger and CoreComm Merger Sub
following the consummation of the Domestication Merger, and all references to
CoreComm Common Stock shall be deemed to mean the CoreComm Common Stock prior to
the consummation of the Domestication Merger and CoreComm Merger Sub Common
Stock after the consummation of the Domestication Merger.
(e) Subject to the provisions of this Agreement, a
certificate of merger (the "Certificate of Merger") in such form as is required
by the relevant provisions of the DGCL shall be duly prepared, executed and
acknowledged by the appropriate parties and thereafter delivered to the
Secretary of State of the State of Delaware for filing, as provided in the DGCL,
on the Closing
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<PAGE> 9
Date (as defined in Section 2.1). The Merger shall become effective upon the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware (the "Effective Time").
(f) At the Effective Time, the separate existence of ATX
Merger Sub shall cease and ATX Merger Sub shall be merged (the "Merger") with
and into CoreComm Merger Sub (ATX Merger Sub and CoreComm Merger Sub are
sometimes referred to herein as the "Constituent Corporations" and CoreComm
Merger Sub is sometimes referred to herein as the "Surviving Corporation"). The
Certificate of Incorporation of CoreComm Merger Sub as in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by the DGCL, the
Bylaws of CoreComm Merger Sub as in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation until thereafter amended
as provided by the DGCL, the Certificate of Incorporation and such Bylaws.
(g) At and after the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises of a
public as well as of a private nature, and be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations; and all and
singular rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
either of the Constituent Corporations on whatever account, as well as for stock
subscriptions and all other things in action or belonging to each of the
Constituent Corporations, shall be vested in the Surviving Corporation, and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter the property of the Surviving Corporation as they
were of the Constituent Corporations, and the title to any real estate vested by
deed or otherwise, in either of the Constituent Corporations, shall not revert
or be in any way impaired; but all rights of creditors and all liens upon any
property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thereafter attach to the Surviving Corporation, and may be
enforced against it to the same extent as if such debts and liabilities had been
incurred by it.
1.2 The Recapitalization.
(a) Simultaneously with the Merger, ATX shall recapitalize
(the "Recapitalization") by causing the ATX Stockholders to exchange, and the
ATX Stockholders agree to exchange, all of the issued and outstanding shares of
pre-Recapitalization ATX common stock, par value $.01 per share ("ATX Common
Stock") for the following aggregate consideration:
(i) That number of shares of ATX Common Stock equal
to $500 million divided by the Base Stock Price. The "Base Stock Price" shall be
equal to $40.328, subject to the Base Adjustments as defined below.
The number of shares of ATX Common Stock to be received by the
ATX Stockholders in connection with the Recapitalization will be subject to a
collar mechanism as follows: in the event that the volume weighted average
trading price of CoreComm Common Stock for the ten trading days ending with the
last trading day prior to the Closing Date (the "Closing Stock Price") is
greater than the Collar Stock Price (as defined below), then the number of
shares
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<PAGE> 10
of ATX Common Stock to be issued to the ATX Stockholders pursuant to the
Recapitalization will be adjusted such that the aggregate value (based on the
Closing Stock Price) of the ATX Common Stock received by the ATX Stockholders is
equal to the aggregate value (based on the Closing Stock Price) of ATX Common
Stock they would have been entitled to receive if the Closing Stock Price were
equal to the Collar Stock Price.
The "Collar Stock Price" shall be the Base Stock Price
multiplied by the Collar Percentage. The Collar Percentage shall be equal to
115%, subject to the following adjustments: If (1) the Closing has not occurred
on or prior to July 15, 2000, (2) subsequent to the date of this Agreement,
CoreComm has engaged in a transaction (other than transactions contemplated by
this Agreement, which shall not be deemed to include the potential transaction
referred to in Section 5.18 or any transaction which would result in a Base
Adjustment) (a "CoreComm Transaction") that would (x) require the approval of
the stockholders of CoreComm or, (y) require CoreComm to include the information
relating to such transaction in the pro forma financial statements (the "Pro
Formas") that are required to be contained in the Registration Statement or (z)
require CoreComm to amend or restate the Pro Formas in any material manner, and
(3) all conditions to Closing have been satisfied (or waived by the party
entitled to waive such condition) or are capable of being satisfied on such date
with reasonable best efforts, other than the conditions set forth in Sections
6.10 and/or 6.11, and the failure of either such condition to be satisfied is
the direct result of a CoreComm Transaction, then, commencing on the later to
occur of (i) July 16, 2000 and (ii) the first business day after which the
circumstances set forth in clause (3) are present (such later date being the
"Trigger Day") the Collar Percentage shall be increased as follows: 2.5
percentage points on the Trigger Day, and an additional five percentage points
per each 31 day period (a "Monthly Period") (on a pro rata basis, based on the
actual number of elapsed days in such Monthly Period at the Closing Date)
beginning on the sixteenth calendar day following the Trigger Day. An example of
this calculation is set forth on Exhibit J.
The "Base Adjustments" shall be as follows: (i) if, after the
date of this Agreement and on or prior to the Closing Date the outstanding
shares of CoreComm Common Stock shall be changed into a different number of
shares by reason of any reclassification, recapitalization, stock split, reverse
stock split, combination or exchange of shares, or any dividend payable in
CoreComm Common Stock shall be declared thereon with a record date within such
period, or any similar event shall occur, the Base Stock Price shall be adjusted
accordingly to provide to the ATX Stockholders the same economic effect as
contemplated by this Agreement prior to such reclassification, recapitalization,
stock split, reverse stock split, combination, exchange, dividend or similar
event; and (ii) if, after the date of this Agreement and on or prior to the
Closing Date, CoreComm shall distribute to all holders of CoreComm Common Stock
shares of capital stock of CoreComm other than CoreComm Common Stock, evidences
of indebtedness or other assets (other than cash dividends out of current or
retained earnings), or shall distribute to substantially all holders of Common
Stock rights or warrants to subscribe for securities (other than those referred
to in subsection (i) above), then in each such case the Base Stock Price shall
be multiplied by a fraction of which the numerator shall be the Current Market
Price (as defined below) of the CoreComm Common Stock on the record date less
the then fair market value (as determined by the CoreComm Board of Directors,
whose determination shall be conclusive evidence of such fair market value
(absent manifest error) and described in a board resolution) of the portion of
the assets so distributed or of such subscription rights or warrants applicable
to one share of CoreComm Common Stock and
4
<PAGE> 11
of which the denominator shall be the Current Market Price of the CoreComm
Common Stock. The "Current Market Price" shall mean the volume weighted average
trading price of CoreComm Common Stock for the ten prior trading days. CoreComm
may only effect a distribution described under (ii) above, if such distribution
does not include operating assets that are required to maintain the current
operating businesses of CoreComm, Inc. (a subsidiary of CoreComm), other than
the LMDS licenses and related assets.
(ii) 250,000 shares of ATX Series 3% Senior
Convertible Exchangeable Preferred Stock, par value $.01 per share ("ATX
Convertible Preferred Stock"), with such rights and preferences as set forth in
the term sheet attached hereto as Exhibit A setting forth the terms and
conditions of the ATX Convertible Preferred Stock; and
(iii) $150 million in cash (the "Cash Consideration")
(subject to certain adjustments set forth herein) (collectively with the ATX
Common Stock and the ATX Convertible Preferred Stock, the "Exchange
Consideration"); provided, however, that in the event CoreComm has not completed
a debt or equity financing (including a public or private sale of equity
securities or an institutional debt financing) prior to the Closing Date, at
CoreComm's election, the aggregate amount of Cash Consideration to be paid by
CoreComm to the ATX Stockholders may be reduced by up to $70 million and such
portion of the Cash Consideration shall be paid through the issuance of short
term senior notes with such terms and conditions as set forth in the term sheet
attached hereto as Exhibit B.
(b) ATX shall prepare as of a date not more than five (5)
business days prior to the Closing Date, an unaudited consolidated balance sheet
(estimated as of the Closing Date) and unaudited statements of income and cash
flows of ATX for the period from the ATX Balance Sheet Date to the date of such
statements (the "Pre-Closing Financial Statements") from the GAAP Audited
Financials and the books and records of ATX in accordance with GAAP (applied on
a consistent basis using the same accounting methods, policies, practices,
principles and procedures with consistent classifications, judgments and
estimation methodologies used in preparation of the GAAP Audited Financials) and
shall set forth the Working Capital ("Estimated Closing Working Capital"), the
ATX Debt (the "Estimated Closing ATX Debt") and the estimated capital
expenditures made by ATX during such period (the "Estimated Closing Capital
Expenditures"). To the extent ATX intends to make distributions at Closing as
permitted by Section 1.2(j), such intended distributions shall be included in
the Pre-Closing Financial Statements on a pro-forma basis. ATX shall provide a
copy of the Pre-Closing Financial Statements to CoreComm within three (3) days
of its completion.
In the event that the Pre-Closing Financial Statements
reflect that the Estimated Closing Working Capital is less than zero (such
deficiency, the "Working Capital Shortfall"), then the Exchange Consideration
shall be reduced (subject to the calculation of the Final Closing Financial
Statements) by an amount equal to the excess of zero over the Estimated Closing
Working Capital. If the Pre-Closing Financial Statements reflect that the
Estimated Closing Working Capital is greater than zero (such excess, the
"Working Capital Excess") then the Exchange Consideration shall be increased
(subject to the calculation of the Final Closing Financial Statements) by an
amount equal to the amount of the Working Capital Excess. The Working Capital
5
<PAGE> 12
Shortfall or Working Capital Excess, as applicable, shall be the "Pre-Closing
Working Capital Adjustment."
In the event that the Pre-Closing Financial Statements
reflect that Estimated Closing ATX Debt is greater than zero, then the Exchange
Consideration shall be reduced (subject to the calculation of the Final Closing
Financial Statements) by an amount equal to the Estimated Closing ATX Debt.
In the event that the Pre-Closing Financial Statements
reflect that the Capital Expenditure Adjustment, as calculated using the
Estimated Closing Capital Expenditures from the Pre-Closing Financial
Statements, is greater than zero (such amount, the "Pre-Closing Capital
Expenditure Adjustment"), then the Exchange Consideration shall be reduced
(subject to a calculation of the final Closing Financial Statements) by an
amount equal to the Pre-Closing Capital Expenditure Adjustment.
(c) Within ninety (90) days after the Closing Date (the
"Closing Financial Statements Delivery Date"), ATX shall cause to be prepared
and delivered to the Stockholder Representative (as defined below) a proposed
unaudited balance sheet and proposed unaudited statements of income and cash
flows (the "Proposed Closing Financial Statements") prepared in accordance with
GAAP (applied on a consistent basis using the same accounting methods, policies,
practices, principles and procedures with consistent classifications, judgments
and estimation methodologies that were used in preparation of the GAAP Audited
Financials) setting forth the Working Capital of ATX and ATX Debt as of the
Closing Date and Capital Expenditures of ATX for the period from the ATX Balance
Sheet Date through the Closing Date. For purposes of this Section 1.2, the
Stockholder Representative shall mean BDO Seidman, LLP.
(d) The Stockholder Representative shall have a period of
thirty (30) days (the "Review Period") from the date on which ATX delivers the
Proposed Closing Financial Statements to the Stockholder Representative pursuant
to Section 1.2(c), to review the Proposed Closing Financial Statements. If,
prior to the expiration of the Review Period, the Stockholder Representative
does not deliver a Dispute Notice (as defined below) to ATX, the unaudited
balance sheet and unaudited statements of income and cash flows included in the
Proposed Closing Financial Statements shall be deemed to be final and binding
upon ATX and the ATX Stockholders for purposes of determining the Working
Capital of ATX and the ATX Debt as of the Closing Date and the Capital
Expenditures of ATX for the period from the ATX Balance Sheet Date through the
Closing Date for purposes of this Agreement. The unaudited balance sheet and
unaudited statements of income and cash flows included in the Proposed Closing
Financial Statements shall not become final and binding at the end of the Review
Period if, prior to the expiration of the Review Period, the Stockholder
Representative delivers a written notice to ATX (the "Dispute Notice") setting
forth in reasonable detail the disagreements that the Stockholder Representative
has with the unaudited balance sheet and/or either of the unaudited statements
of income and cash flows included in the Proposed Closing Financial Statements
and the effect which such disagreements would have on the calculation of any of
the Working Capital of ATX and ATX Debt as of the Closing Date or Capital
Expenditures of ATX for the period from the ATX Balance Sheet Date through the
Closing Date. If the Stockholder Representative delivers a Dispute Notice prior
to the end of the Review Period, the representatives of ATX and the Stockholder
Representative shall have a ten (10) day period (the
6
<PAGE> 13
"Settlement Period") from the date of the delivery of the Dispute Notice to
attempt to resolve any dispute set forth in the Dispute Notice and to agree upon
an unaudited balance sheet and unaudited statements of income and cash flows
which shall be binding on ATX and the ATX Stockholder for purposes of this
Agreement and to agree upon the Working Capital of ATX and ATX Debt as of the
Closing Date and the Capital Expenditures of ATX for the period from the ATX
Balance Sheet Date through the Closing Date. If the Stockholder Representative
and ATX have not arrived at an agreement during the Settlement Period then, at
any time following the termination of the Settlement Period, either the
Stockholder Representative or ATX may submit the issue in dispute to the
Philadelphia, Pennsylvania office of PricewaterhouseCoopers LLP (the
"Accountant") for resolution in accordance with this Section. In resolving any
disputed item, the Accountant (i) shall be bound by the provisions of this
Section 1.2, (ii) may not assign a value to any item greater than the greatest
value for such item claimed by either party or less than the smallest value for
such item claimed by either party, (iii) shall make its determination based
solely on information submitted by the parties and not by independent review and
(iv) shall be instructed to issue a report containing its resolution of the
disputed issue or issues (the "Accountant's Report") within thirty (30) days
following submission of the dispute. The Accountant's Report shall be delivered
by the Accountant to ATX and the Stockholder Representative, and shall be final
and binding on ATX and the ATX Stockholders for purposes of this Agreement. The
fees charged by the Accountant shall be paid by ATX.
(e) During the period of any dispute within the
contemplation of this Section 1.2, the ATX Stockholders, the Stockholder
Representative and their representatives (including counsel and accountants)
shall have reasonable access during normal business hours to all books, records,
employees, offices and other facilities and properties of the Surviving
Corporation to the extent required to complete their review of the Closing
Financial Statements and shall be permitted to review the working papers
(subject to the execution of customary waivers, releases and indemnifications),
if any, of ATX or its auditor relating to the Closing; provided that any such
access shall not unreasonably interfere with the day-to-day operations of ATX
and shall be limited to those items related to the assessment of the Closing
Financial Statements and matters related thereto. ATX and CoreComm or their
auditors shall cooperate with the ATX Stockholders and other representatives of
the ATX Stockholders in facilitating such review.
(f) In the event that the Final Closing Financial Statements
reflect that the Working Capital of ATX as of the Closing Date is less than the
Applicable Amount (such deficiency, the "Final Working Capital Shortfall"), then
an amount equal to the excess of the Applicable Amount over the Final Working
Capital Shortfall shall be paid to ATX from the Escrow (defined below) as
provided in Subsection 1.2(i) (the "Final Shortfall"); provided, however, that
the Final Shortfall shall be adjusted to reflect any adjustments to the Closing
Exchange Consideration previously made due to a Pre-Closing Working Capital
Adjustment. If the Final Closing Balance Sheet reflects that the Working Capital
of ATX as of the Closing Date is greater than the Applicable Amount (a "Final
Working Capital Excess") then an amount equal to the excess of the Final Working
Capital Excess over the amount of Working Capital generated subsequent to July
31, 2000 shall be delivered to the ATX Stockholders by ATX as provided in
Subsection 1.2(i); provided, however, that the Final Working Capital Excess (and
any related amounts to be paid) shall be adjusted to reflect any adjustments to
the Closing Exchange Consideration previously made due to a Pre-Closing Working
Capital Adjustment. As used herein, the "Applicable Amount" means
7
<PAGE> 14
$2,000,000, if the Closing occurs on or prior to July 31, 2000 and zero if the
Closing occurs after July 31, 2000.
(g) In the event that the Final Closing Financial Statements
reflect that the ATX Debt is greater than zero (such amount the "Final ATX
Debt"), then an amount equal to the Final ATX Debt shall be paid to ATX from the
Escrow as provided in Subsection 1.2(i); provided, however, that the Final ATX
Debt shall be adjusted to reflect any adjustments to the Closing Exchange
Consideration previously made due to any Estimated Closing ATX Debt.
(h) In the event that the Final Closing Financial Statements
reflect that the Capital Expenditure Adjustment, as calculated utilizing the
Capital Expenditures as set forth on the Final Closing Financial Statements, is
greater than zero (the "Final Capital Expenditure Adjustment"), then the amount
equal to the Final Capital Expenditure Adjustment shall be paid to ATX from the
Escrow as provided in Subsection 1.2(i); provided, however, that the Final
Capital Expenditure Adjustment shall be adjusted to reflect adjustments to the
Closing Exchange Consideration previously made due to a Pre-Closing Capital
Expenditure Adjustment.
(i) Upon the Recapitalization, an aggregate of 1.1111% of
all shares of ATX Common Stock, ATX Convertible Preferred Stock and Cash
Consideration (provided that if any portion of the Cash Consideration is to be
payable in Short Term Senior Notes, the Short Term Senior Notes shall be
delivered prior to the Cash Consideration) comprising the Exchange Consideration
shall be deposited in escrow (the "Escrow") pursuant to an escrow agreement
among ATX, CoreComm, each ATX Stockholder and an escrow agent selected by such
parties (the "Escrow Agreement"). In the event of any reduction in the Exchange
Consideration requiring a repayment to ATX under Subsections (f) through (h)
above, such repayment shall be made pro rata from the ATX Common Stock, ATX
Convertible Preferred Stock and cash in the Escrow, for purposes of which the
ATX Common Stock shall be valued at the closing price for ATX Common Stock on
the trading day immediately preceding the day on which the repayment of such
share to ATX is effected. Any amounts payable by ATX under Subsection (f) as
additional Exchange Consideration shall be in shares of ATX Common Stock based
on the same valuation as set forth in the preceding sentence subject to the
right of any ATX Stockholders to elect to receive such additional Exchange
Consideration in cash.
(j) From the ATX Balance Sheet Date through the Closing
Date, ATX shall be permitted to:
(i) make such cash distributions and payments to the
ATX Stockholders: (x) in order to satisfy any debt obligation of ATX to the ATX
Stockholder(s) (including affiliates thereof); (y) in order to return any
capital to the ATX Stockholders (including the amount of any positive capital
account balances respecting the ATX Partnerships) (as hereinafter defined); and
(z) of any undistributed profits computed in accordance with GAAP of ATX or the
ATX Partnership through the Closing Date; provided that if there is insufficient
cash on hand to make such distributions and payments, the amounts shall be
payable by ATX on the business day next following the Closing Date and the
payment of such amounts shall be deemed to have been made on the business day
prior to the Closing Date for purposes of the adjustments set forth in this
Section 1.2; or
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(ii) cancel or eliminate any indebtedness owed by any
ATX Stockholders to ATX.
(k) The following terms, whenever used herein, shall have
the following meanings for all purposes of this Agreement:
"ATX Balance Sheet Date" means December 31, 1999.
"ATX Capital Expenditure Obligation" means the
obligation of ATX and the ATX Partnerships to make Capital Expenditures from the
period commencing January 1, 2000 through the Closing Date in the amount and for
those categories of items set forth on Section 1.2 of the ATX Disclosure
Schedule.
"ATX Debt" means all liabilities of ATX, other than
current liabilities, as set forth on the Pre-Closing Financial Statements, the
Closing Financial Statements and the Final Closing Financial Statement, as
applicable.
"Capital Expenditures" means, with respect to a period,
all amounts that would, in accordance with GAAP, be set forth as "capital
expenditures" or "purchase of property and equipment"on the statement of cash
flows for ATX for such period.
"Capital Expenditure Adjustment" means the excess of the
amount of ATX Capital Expenditure Obligation over the actual Capital
Expenditures of ATX from the period between the ATX Balance Sheet Date and
Closing, but in no event shall the Capital Expenditure Adjustment be a negative
amount.
"GAAP" means generally accepted accounting principles as
in effect on the date or for the period with respect to which such principles
apply in all cases applied on a consistent basis.
"Working Capital" shall mean, as of any date, the
current assets of ATX less the current liabilities of ATX (exclusive of the
current portion of long term debt), all determined in accordance with GAAP.
1.3 Conversion of CoreComm Common 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 ATX Merger Sub's common stock, par value $.01 per share ("ATX Merger
Sub Common Stock") or CoreComm's common stock, par value $.01 per share
("CoreComm Common Stock"):
(a) Each issued and outstanding share of ATX Merger Sub
Common Stock shall be converted into the right to receive one (1) share of
CoreComm Common Stock.
(b) All shares of CoreComm Common Stock that are owned by
CoreComm as treasury stock or by any Subsidiary of CoreComm shall be canceled
and retired and shall cease to exist and no consideration shall be delivered in
exchange therefor. As used in this Agreement, the word "Subsidiary" means, with
respect to any party, any corporation or other organization, whether
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incorporated or unincorporated, of which (i) such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of such
party do not have a majority of the voting interest in such partnership) or (ii)
at least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
(c) Subject to Section 1.4, each issued and outstanding
share of CoreComm Common Stock (other than shares to be canceled in accordance
with Section 1.3(b) and shares to be issued under Section 1.3(a)) shall be
converted into the right to receive one (1) (the "Merger Ratio") fully paid and
nonassessable shares of ATX Common Stock. All such shares of CoreComm Common
Stock, when so converted, shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the shares of ATX Common Stock and
any cash in lieu of fractional shares of ATX Common Stock to be issued or paid
in consideration therefor upon the surrender of such certificate in accordance
with Section 1.4.
1.4 Exchange of Certificates. The procedures for exchanging
outstanding shares of CoreComm Common Stock for ATX Common Stock pursuant to the
Merger shall be as follows:
(a) As of the Effective Time, ATX shall deposit with an
exchange agent selected by CoreComm and reasonably acceptable to ATX (the
"Exchange Agent"), for the benefit of the holders of shares of CoreComm Common
Stock, certificates representing the shares of ATX Common Stock and cash (such
shares of ATX Common Stock together with any dividends or distributions with
respect thereto, together with such cash, being hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 1.3 in exchange for outstanding
shares of CoreComm Common Stock.
(b) Promptly 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
CoreComm Common Stock (each a "Certificate" and, collectively, the
"Certificates") whose shares were converted pursuant to Section 1.4 into the
right to receive shares of ATX Common Stock (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as ATX and
CoreComm may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of ATX Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of ATX Common Stock which
such holder has the right to receive pursuant to the provisions of this Article
1, and the Certificate so surrendered shall immediately be canceled. In the
event of a transfer of ownership of CoreComm Common Stock which is not
registered in the transfer records of CoreComm, a certificate representing the
proper number of shares of ATX Common Stock may be issued to a transferee if
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the Certificate representing such CoreComm Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 1.4, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the certificate representing shares of ATX Common
Stock and cash in lieu of any fractional share as contemplated by this Section
1.4. All shares of ATX Common Stock issued upon the surrender for or exchange of
Certificates in accordance with the terms of this Agreement, shall be deemed to
have been issued in full satisfaction of all rights pertaining to the CoreComm
Common Stock shares formerly represented by such Certificates. The instructions
for effecting the surrender of the Certificates shall set forth procedures that
must be taken by the holder of any Certificate that has been lost, destroyed or
stolen. It shall be a condition to the right of such holder to receive a
certificate representing shares of ATX Common Stock that the Exchange Agent
shall have received, along with the letter of transmittal, a duly executed lost
certificate affidavit, including an agreement to indemnify ATX, signed exactly
as the name or names of the registered holder or holders appeared on the books
of CoreComm immediately prior to the Effective Time, together with a customary
bond and such other documents as ATX or the Exchange Agent may reasonably
require in connection therewith.
(c) No dividends or other distributions declared or made
after the Effective Time with respect to ATX Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of ATX Common Stock represented thereby
and no cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to subsection (e) below until the holder of such Certificate
shall surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the holder
of the certificates representing whole shares of ATX Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of ATX Common Stock to
which such holder is entitled pursuant to subsection (e) below and the amount of
dividends or other distributions with a record date after the Effective Time
previously paid with respect to such whole shares of ATX Common Stock, and (ii)
at the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a payment
date subsequent to surrender payable with respect to such whole shares of ATX
Common Stock.
(d) All shares of ATX Common Stock issued upon the surrender
for exchange of shares of CoreComm Common Stock in accordance with the terms
hereof (including any cash paid pursuant to subsection (c) or (e) of this
Section 1.4) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of CoreComm Common Stock, subject, however, to
the Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have been
declared or made by CoreComm on such shares of CoreComm Common Stock in
accordance with the terms of this Agreement on or prior to the date hereof and
which remain unpaid at the Effective Time, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of CoreComm Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Section 1.4.
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(e) No certificate or scrip representing fractional shares
of ATX Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to exercise any rights of a stockholder of ATX.
Notwithstanding any other provision of this Agreement, each holder of shares of
CoreComm Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of ATX Common Stock (after taking
into account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of ATX Common Stock multiplied by the last reported sale price of ATX
Common Stock, as reported on The Nasdaq National Market, on the first trading
day after the Effective Time.
(f) Any portion of the Exchange Fund which remains
undistributed to the stockholders of CoreComm for one year after the Effective
Time shall be delivered to ATX, and any former stockholders of CoreComm who have
not previously complied with this Section 1.4 shall thereafter look only to ATX
for payment of their claim for ATX Common Stock, any cash in lieu of fractional
shares of ATX Common Stock, and any dividends or distributions with respect to
CoreComm Common Stock or ATX Common Stock.
(g) Neither CoreComm nor ATX shall be liable to any former
holder of shares of CoreComm Common Stock or current holder of ATX Common Stock,
as the case may be, for such shares (or dividends or distributions with respect
thereto) delivered to a public official as required by any applicable abandoned
property, escheat or similar law.
1.5 Directors and Officers of Surviving Corporation. The initial
directors of the Surviving Corporation shall be the directors of CoreComm
immediately prior to the Merger, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation, and the
initial officers of the Surviving Corporation shall be the officers of CoreComm
immediately prior to the Merger, in each case until their respective successors
are duly elected or appointed.
1.6 Directors and Officers of ATX. At Closing, the directors of ATX
shall be the directors of CoreComm immediately prior to the Merger, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of ATX,
and the initial officers of ATX shall be the officers of CoreComm immediately
prior to the Merger, in each case until their respective successors are duly
elected or appointed.
II. CLOSING
2.1 Closing.
(a) The closing of the transaction contemplated by this
Agreement (the "Closing") shall take place at the offices of Klehr, Harrison,
Harvey, Branzburg & Ellers LLP, 260 South Broad Street, Philadelphia,
Pennsylvania 19102, at 10:00 A.M., on the second business day immediately
following the day on which the last to be fulfilled or waived of the conditions
set forth in Articles 6 and 7 shall be fulfilled or waived in accordance
herewith or at such other time, date or
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place as the parties hereto may agree. The date on which the Closing actually
occurs is referred to herein as the "Closing Date."
(b) At the Closing, ATX and ATX Merger Sub shall deliver all
previously undelivered documents, instruments and writings required to be
delivered by ATX and ATX Merger Sub at or prior to the Closing pursuant to this
Agreement or otherwise required in connection therewith.
(c) At the Closing, CoreComm shall deliver all previously
undelivered documents, instruments and writings required to be delivered by
CoreComm at or prior to the Closing pursuant to this Agreement or otherwise
required in connection therewith.
III. REPRESENTATIONS AND WARRANTIES OF
ATX AND ATX MERGER SUB
The predecessors of ATX were two limited partnerships formed under the
laws of the Commonwealth of Pennsylvania, ATX Telecommunications Services Ltd.
and Global Telecom Services (the "ATX Partnerships") who, together with A. T.
Telecommunications, Inc. and Global Telecommunications, Inc., their respective
general partners, merged with and into ATX on February 9, 2000 (the "ATX
Merger"). With the exceptions of Sections 3.1, 3.2 and 3.3 hereof, which shall
refer solely to ATX, unless otherwise specifically provided for therein, the
representations and warranties of ATX in this Article 3 shall refer to the ATX
Partnerships and to ATX, as applicable. Except as set forth in the ATX
Disclosure Schedule delivered by ATX to CoreComm prior to the execution of this
Agreement (the "ATX Disclosure Schedule") (each section of which qualifies the
correspondingly numbered representation and warranty or covenant to the extent
specified therein), ATX (and ATX Merger Sub to the extent set forth herein)
represents and warrants to CoreComm as follows:
3.1 Organization, Etc.
(a) ATX is a corporation duly organized, validly existing
and in good standing as a corporation under the laws of the State of Delaware.
ATX has the power and authority to conduct its business as it is currently being
conducted and as heretofore been conducted by the ATX Partnerships and to own,
operate and lease the property and assets that it now owns and leases. ATX is
duly qualified or licensed and in good standing to do business (and has paid all
relevant franchise and similar taxes) in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or license necessary, except where the failure to be so qualified
would not have, individually or in the aggregate, a Material Adverse Effect and
each such jurisdiction is listed on Section 3.1(a)(i) of the ATX Disclosure
Schedule. ATX is duly licensed or permitted as a "public utility" or similar
regulated entity by state Governmental Authority in all states where such
licensing or permitting is necessary and each such state and license or permit
is set forth in Section 3.1(a)(ii) of the ATX Disclosure Schedule. The copies of
the Certificate of Incorporation (the "ATX Certificate of Incorporation") and
Bylaws (the "ATX Bylaws") of ATX and the Partnership Agreements of the ATX
Partnerships (the "ATX Partnership Agreements"), as previously delivered to
CoreComm by ATX, are complete and correct copies of such instruments as
currently in full force and effect. The minute books, or comparable records, of
ATX and the ATX
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Partnerships heretofore have been made available to CoreComm for its inspection
and contains true and complete records of all meetings and consents in lieu of
meetings of the Board of Directors (and any committee thereof), and the
stockholders of ATX and the partners of the ATX Partnerships since the time of
the ATX's organization and the organization of the ATX Partnerships, as the case
may be, and accurately reflect all transactions referred to in such minutes and
consents in lieu of meetings. The stock books, or comparable records, of ATX and
the ATX Partnerships heretofore have been made available to the CoreComm for its
inspection and are true and complete. ATX does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest, in any
corporation, partnership, joint venture or other business association or entity.
(b) At the Closing, ATX Merger Sub shall be a corporation
duly organized, validly existing and in good standing as a corporation under the
laws of the State of Delaware. ATX Merger Sub shall have the power and authority
to conduct its business as it is currently being conducted and to own, operate
and lease the property and assets that it then owns and leases. ATX Merger Sub
shall be duly qualified or licensed and in good standing to do business (and
shall have paid all relevant franchise and similar taxes) in each jurisdiction
in which the nature of its business or the ownership or leasing of its
properties makes such qualification or license necessary, except where the
failure to be so qualified would not have, individually or in the aggregate, a
Material Adverse Effect. The copies of the Certificate of Incorporation (the
"ATX Merger Sub Certificate of Incorporation") and Bylaws (the "ATX Merger Sub
Bylaws") of ATX Merger Sub, as shall be delivered to CoreComm by ATX Merger Sub,
will be complete and correct copies of such instruments as in full force and
effect at the Closing. The minute books, or comparable records, of ATX Merger
Sub shall have been made available to CoreComm for its inspection and shall
contain true and complete records of all meetings and consents in lieu of
meetings of the Board of Directors (and any committee thereof), and the
stockholders of ATX Merger Sub from the time of the ATX's Merger Sub's
organization to Closing, and will accurately reflect all transactions referred
to in such minutes and consents in lieu of meetings. The stock books, or
comparable records, of ATX Merger Sub shall have been made available to CoreComm
for its inspection and will be true and complete. At the Closing, ATX Merger Sub
will not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any equity or
similar interest, in any corporation, partnership, joint venture or other
business association or entity.
3.2 Authorization.
(a) ATX has all power and authority necessary to execute and
deliver this Agreement and to perform its obligations under this Agreement and
to consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the performance of ATX's obligations and
consummation of the transactions contemplated hereby have been duly authorized
by ATX and no corporate proceedings on the part of ATX are necessary to
authorize this Agreement or to consummate such transactions. The stockholders of
ATX have approved the entering into by ATX of the Agreement and the performance
of the transactions contemplated hereby and no additional stockholder
proceedings are necessary to authorize this Agreement or to consummate such
transactions. This Agreement has been duly executed and delivered by ATX and
constitutes a valid and binding obligation of ATX, enforceable against ATX in
accordance with its terms, except as such enforceability may be limited by
bankruptcy,
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insolvency, reorganization, moratorium and similar laws relating to or affecting
creditors rights generally, or by general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(b) At the Closing, ATX Merger Sub shall have all power and
authority necessary to execute and deliver this Agreement and to perform its
obligations under this Agreement and to consummate the transactions contemplated
by this Agreement. Such execution and delivery of this Agreement and the
performance of ATX Merger Sub's obligations and consummation of the transactions
contemplated hereby shall have been duly authorized by ATX Merger Sub and no
corporate proceedings on the part of ATX Merger Sub shall be necessary to
authorize this Agreement or to consummate such transactions. At the time of ATX
Merger Sub's execution and delivery of this Agreement and at the Closing, the
stockholders of ATX Merger Sub shall have approved the entering into by ATX
Merger Sub of the Agreement and the performance of the transactions contemplated
hereby and no additional stockholder proceedings shall be necessary to authorize
this Agreement or to consummate such transactions. At the time of ATX Merger
Sub's execution and delivery of this Agreement this Agreement shall have been
duly executed and delivered by ATX Merger Sub and shall constitute a valid and
binding obligation of ATX Merger Sub, enforceable against ATX Merger Sub in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting creditors rights generally, or by general equity principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.3 Capitalization.
(a) The authorized capital stock of ATX consists of 10,000
shares of ATX Common Stock. As of the date hereof, (i) 1,000 shares of ATX
Common Stock were issued and outstanding, all of which are validly issued, fully
paid and nonassessable and (ii) no shares of ATX Common Stock were held in the
treasury of ATX. All of the outstanding shares of ATX Common Stock are owned by
the persons listed on Section 3.3 of the ATX Disclosure Schedule, in the
respective amounts set forth on Section 3.3 of the ATX Disclosure Schedule, free
and clear of any Liens. There are no obligations, contingent or otherwise, of
ATX to repurchase, redeem or otherwise acquire any shares of ATX Common Stock.
(b) (i) Except for the ATX Common Stock, there are no equity
securities of any class of ATX, or any security exchangeable into or exercisable
for such equity securities, issued, reserved for issuance or outstanding; (ii)
except as set forth on Section 3.3 of the ATX Disclosure Schedule, there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which ATX is a party or by which it is bound obligating ATX
or any successor to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of equity securities of ATX or any successor or
obligating ATX or any successor to grant, extend, accelerate the vesting of or
enter into any such option, warrant, equity security, call, right, commitment or
agreement; and (iii) except as may be contemplated by this Agreement there are
no voting trusts, proxies or other voting agreements or understandings with
respect to the shares of equity securities of ATX.
(c) At the Closing, the authorized capital stock of ATX
Merger Sub shall consist of 1,000 shares of ATX Merger Sub Common Stock. As of
the Closing Date, (i) 100 shares of ATX
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Merger Sub Common Stock shall be issued and outstanding, all of which shall be
validly issued, fully paid and nonassessable and (ii) no shares of ATX Merger
Sub Common Stock shall be held in the treasury of ATX Merger Sub. At the
Closing, all of the outstanding shares of ATX Merger Sub Common Stock shall be
owned by ATX free and clear of any Liens. At the Closing, there are no
obligations, contingent or otherwise, of ATX Merger Sub to repurchase, redeem or
otherwise acquire any shares of ATX Merger Sub Common Stock .
(d) (i) At the Closing, except for the ATX Merger Sub Common
Stock, there shall be no equity securities of any class of ATX Merger Sub, or
any security exchangeable into or exercisable for such equity securities,
issued, reserved for issuance or outstanding; (ii) there shall be no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which ATX Merger Sub is a party or by which it is bound obligating
ATX Merger Sub or any successor to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of equity securities of ATX Merger
Sub or any successor or obligating ATX Merger Sub or any successor to grant,
extend, accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement; and (iii) except as may be
contemplated by this Agreement there shall be no voting trusts, proxies or other
voting agreements or understandings with respect to the shares of equity
securities of ATX Merger Sub.
3.4 No Violation. Neither the execution or delivery of this
Agreement or any agreement contemplated hereby by ATX, nor the performance by
ATX of the transactions contemplated hereby (including, without limitation, the
ATX Merger) violates, conflicts with results in a breach of or constitutes a
default (or an event or condition that, with notice or lapse of time or both,
would constitute a default) under, gives others any right of termination,
amendment, acceleration, cancellation or revocation of or results in the
termination, amendment, cancellation or revocation of, or accelerates the
performance required by, or causes the acceleration of the maturity of any
liability or obligation pursuant to, or results in the creation or imposition of
any security interest, lien, charge or other encumbrance ("Liens") upon any of
the property or assets of ATX under (a) the ATX Certificate of Incorporation,
the ATX Bylaws or the ATX Partnership Agreement or (b) except as individually or
in the aggregate would not have a Material Adverse Effect any judgment, order,
writ, injunction, decree, law, statute, ordinance, rule, regulation, ("Law") or
any note, bond, mortgage, indenture, deed of trust, license, lease, contract,
Permit, franchise, commitment, understanding, arrangement, agreement or
restriction of any kind or character ("Contract") to which ATX is a party or by
which ATX or its assets or properties is or may be bound or affected. The ATX
Disclosure Schedule sets forth a correct and complete list in all material
respects of Contracts to which ATX is a party or by which it or its assets or
properties is or may be bound or affected under which consents or waivers are or
may be required prior to consummation of the transactions contemplated by this
Agreement, including, without limitation, the ATX Merger. Other than as set
forth in Section 3.4 of the ATX Disclosure Schedule, no consent, approval, order
or authorization of, or registration or filing with, any Governmental Authority
is required to be obtained by or on behalf of ATX in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby (including, without limitation, the ATX Merger).
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3.5 Financial Statements.
(a) ATX has delivered to CoreComm audited balance sheets of
the ATX Partnerships at December 31, 1996, December 31, 1997 and December 31,
1998, together with audited statements of income and cash flows for each of the
years then ended, in each case, together with the reports thereon of BDO
Seidman, LLP, independent certified public accountants (the "ATX Financial
Statements"). All such financial statements (including the notes thereto) were
prepared on a cash basis, which is a basis of accounting other than generally
accepted accounting principles, and fairly present, in all material respects,
the financial condition and results of operations and cash flows of the ATX
Partnerships as of the respective dates or for the periods referred to therein.
In addition, ATX has delivered to CoreComm an unaudited balance sheet (the "ATX
Balance Sheet") as of December 31, 1999, prepared in accordance with GAAP
together with unaudited statements of income and cash flows for the twelve
months then ended, each in draft form and prepared in accordance with GAAP (the
"Unaudited 1999 Financials").
(b) (i) The net income of the ATX Partnerships, before
provision for income taxes, partner salaries and bonuses, interest expense,
depreciation expense, amortization and non-recurring expenses (including
expenses relating to the Phantom Unit Plan), as derived from the GAAP Audited
Financial Statements (as defined in Section 5.10) (prepared in accordance with
United States generally accepted accounting principles) for each of the fiscal
years 1997, 1998 and 1999 are not less than $16,300,000, $14,800,000 and
$10,000,000, respectively. No expense has been recorded by reason of awards
under the Phantom Unit Plan.
(ii) The net revenues of the ATX Partnerships as
derived from the GAAP Audited Financial Statements (as defined in Section 5.11)
(prepared in accordance with United States generally accepted accounting
principles) for each of the fiscal years 1997, 1998 and 1999 are not less than
$90,300,000, $110,800,000 and $131,600,000, respectively.
(c) The Unaudited 1999 Financials do, and the GAAP Audited
Financials to be delivered by ATX pursuant to Section 5.10(b) will, (x) reflect
a non cash compensation charge for the issuance of the units under the 1998
Phantom Unit Plan, and (y) fully reserve in current liabilities for the
following contingent ATX liabilities:
(i) liabilities in respect of claims by the
Pennsylvania Department of Revenue asserting that ATX failed to remit certain
gross receipts taxes for the years 1992, 1993, 1994 and 1996; and
(ii) liabilities, which shall not exceed $175,000, in
respect of the failure to file sales and use taxes, in any jurisdiction.
3.6 No Undisclosed or Contingent Liabilities. Except as set forth on
Section 3.6 of the ATX Disclosure Schedule, ATX has no liabilities or
obligations of any nature (whether absolute, accrued, contingent or otherwise
and whether due or to become due) (whether or not of a kind required by
generally accepted accounting principles to be set forth on a financial
statement or in notes thereto) ("Liabilities") that were not fully and
adequately reflected or reserved against on the ATX Balance Sheet or described
on any schedule or in the notes to the ATX Financial Statements
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except for liabilities and obligations (i) incurred in the ordinary course of
business consistent with past practice since the ATX Balance Sheet Date, or (ii)
arising from this Agreement and transaction expenses incurred in connection with
this Agreement and (iii) which individually or in the aggregate would not have a
Material Adverse Effect.
3.7 Absence of Certain Changes. Since the ATX Balance Sheet Date,
ATX has conducted its business in the ordinary course and consistent with past
practice, and has not, except in the ordinary course and consistent with past
practice or as set forth on Section 3.7 of the ATX Disclosure Schedule:
(a) suffered any change in its operations, financial
condition, assets, liabilities or earnings or working capital which,
individually or in the aggregate, have had a Material Adverse Effect;
(b) permitted or allowed any of its assets to be subjected
to any mortgage, pledge, lien, security interest, encumbrance, restriction or
charge of any kind, other than those which individually or in the aggregate
would not have a Material Adverse Effect;
(c) written down the value of any inventory or written off
as uncollectible any notes or accounts receivable, other than those which,
individually or in the aggregate, would not have a Material Adverse Effect;
(d) canceled any debt, or waived any claim or right with a
value greater than $20,000;
(e) disposed of or permitted to lapse any rights to the use
of any material patent, trademark, trade name, service mark or copyright, or
disposed of or disclosed to any Person other than an officer, director or
employee of ATX any trade secret, formula, process or know-how not theretofore a
matter of public knowledge;
(f) granted any material general increase in the
compensation of employees (including any such increase pursuant to any bonus,
pension, profit sharing or other plan or commitment) or any material increase in
the compensation payable or to become payable to any management employee, and no
such increase is customary on a periodic basis or required by agreement or
understanding (except for ordinary course increases consistent with past
practice and current industry practice);
(g) made any material capital expenditure or material
commitment for additions to its property, equipment or intangible capital
assets, other than those required to execute its current business plan;
(h) made any change in any method of accounting or
accounting practice (other than as is contemplated by this Agreement) or failed
to maintain its books, accounts and records in the ordinary course of business
and consistent with past practice;
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(i) failed to maintain in full force and effect all material
existing policies of insurance at least at such levels as were in effect prior
to such date or canceled any such insurance or taken or failed to take any
action that would enable the insurers under such policies to avoid liability for
claims arising out of occurrences prior to the Closing;
(j) entered into any material transaction or made or entered
into any material contract or commitment, or terminated or amended any material
contract or commitment;
(k) taken any action that, individually or in the aggregate,
could have a Material Adverse Effect on ATX or materially adversely affect its
current relationships with its employees, suppliers, distributors, advertisers,
subscribers or others having business relationships with it;
(l) except as contemplated by this Agreement, declared, paid
or set aside for payment any distribution in respect of the ATX Common Stock or
interests in the ATX Partnerships or redeemed, purchased or otherwise acquired,
directly or indirectly, any of the ATX Common Stock or interests in the ATX
Partnerships; or
(m) agreed to take any action with respect to any of the
matters described in this Section 3.7.
3.8 Litigation, Orders. Except as set forth on Section 3.8 of the
ATX Disclosure Schedule, there are no claims, actions, suits, proceedings,
complaints, demands, litigations or legal, administrative or arbitral
proceedings, investigations or inquiries pending before any court, arbitrator or
governmental or regulatory authority (collectively, "Legal Actions"), or, to the
knowledge of ATX, threatened against or affecting ATX or any of its properties
owned or leased, except as would not, individually or in the aggregate, have a
Material Adverse Effect or which relate to, or could have a material effect on,
the transactions contemplated by this Agreement. There are no Legal Actions
questioning the validity of this Agreement, the transactions contemplated hereby
or any action taken or to be taken by ATX pursuant to this Agreement or any
other agreement contemplated hereby, at law or in equity, before or by any
federal, state, local or foreign governmental authority; nor, to the knowledge
of ATX, is there any valid basis for any Legal Action. To the knowledge of ATX,
there is no fact, event or circumstances that could give rise to any Legal
Actions that, individually or in the aggregate, would have a Material Adverse
Effect. ATX is not subject to any judgment, order or decree entered in any
lawsuit or proceeding that has had or will have a Material Adverse Effect or
materially adversely affect ATX's ability to acquire any property for the use or
benefit of ATX or to conduct its business in any area or which relate to, or
could have any effect on, the transactions contemplated by this Agreement.
3.9 Title to Properties; Encumbrances. Except as set forth on
Section 3.9 of the ATX Disclosure Schedule, ATX has good and marketable title to
all of its properties and assets including all of the assets reflected on the
ATX Balance Sheet, free and clear of all Liens except liens for taxes not yet
due and payable and such liens or other imperfections of title, if any, that do
not materially detract from the value of or materially interfere with the
present use of the property affected thereby and all material leases, subleases,
licenses or other agreements pursuant to which ATX leases real or personal
property, are in good standing, valid and effective in accordance with their
respective
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terms, and there is not, under any such lease, any existing default (or event
which with notice or lapse of time, or both, would constitute a default).
3.10 Compliance with Law; Licenses.
(a) Except as set forth on Section 3.10(a) of the ATX
Disclosure Schedule, the business of ATX (including, without limitation, the ATX
Partnerships prior to the ATX Merger) has not been and is not being conducted in
violation of any laws (whether statutory or otherwise), rules, regulations,
orders, ordinances, judgments, decrees, writs and injunctions of all federal,
state, local or foreign governmental authorities including subdivisions thereof
(collectively, "Laws"), including all Laws relating to the safe conduct of ATX's
business, environmental protection and conservation, antitrust, taxes, consumer
protection, currency exchange, telecommunications, equal opportunity, health,
sanitation, fire, zoning, building, occupational safety, pension, securities and
trademark and copyright, except for such violations as would not, individually
or in the aggregate, have a Material Adverse Effect. Except as set forth on
Section 3.10(a) of the ATX Disclosure Schedule, ATX holds all licenses, permits,
variances, exemptions, authorizations, operating certificates, orders and
approvals of all Governmental Entities (collectively, "Licenses") that are
required for it to own, lease and operate its properties and conduct its
business as currently conducted, except where the failure to hold Licenses would
not, individually or in the aggregate, have a Material Adverse Effect. Except as
set forth on Section 3.10(a) of the ATX Disclosure Schedule, there has occurred
no default under or violation of any such License, except for such violations or
defaults that would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) Since December 31, 1998, ATX has filed with the
applicable PUCs (as defined below) or the FCC, as the case may be, all forms,
statements, reports and documents (including exhibits, annexes and any
amendments thereto) required to be filed by them, and each such filing complied
in all material respects with all applicable laws, rules, and regulations, other
than such failures to file and non-compliance that would, individually or in the
aggregate, have a Material Adverse Effect on it or prevent or impair its ability
to consummate the transactions contemplated by this Agreement.
(c) ATX has all permits, licenses, franchises, consents,
registrations, certificates, variances, exemptions, orders and other
governmental or regulatory authorizations, consents and approvals, necessary to
conduct its business as presently conducted and for the ownership, lease or
operation of property that it now owns or leases, except for those the absence
of which would not, individually or in the aggregate, have a Material Adverse
Effect on it or prevent, delay or impair its ability to consummate the
transactions contemplated by this Agreement (collectively, "Permits"). All such
Permits are listed on Section 3.10(c) of the ATX Disclosure Schedule and are in
full force and effect; no material violations are or have been recorded in
respect of any Permit and no proceeding is pending or threatened to revoke or
limit any Permit. No action by ATX or CoreComm or any other person is required
in order that all Permits will remain in full force or effect following the
consummations of the transactions contemplated by this Agreement. All Permits
are valid and in full force and effect, and ATX has duly performed and is in
compliance in all material respects with all of its obligations under such
Permits.
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(d) Except as set forth on Section 3.10(d) of the ATX
Disclosure Schedule, ATX has validly and properly obtained the necessary Permits
from the appropriate governmental authority in each such jurisdiction,
including, without limitation, state public service and public utilities
commissions ("State PUCs") (the "State Permits") and municipal authorities (the
"Municipal Permits") and holds all Permits issued by the FCC (the "FCC Permits")
that are required for the conduct of its business as it has been and is
presently conducted, and for the holding of its assets. All of the FCC Permits,
the State Permits and the Municipal Permits (collectively the "Communications
Permits") are set forth in Section 3.10(d) of the ATX Disclosure Schedule.
(e) Each of the Communications Permits was duly issued and
is valid and in full force and effect and each of the Communications Permits has
not been modified, canceled, revoked, or conditioned in any adverse manner. Each
of the Communications Permits has not been sold, conveyed, pledged, assigned or
transferred to any other party, and no other party has any present or future
right to acquire use of them.
(f) Except as set forth on Section 3.10(d)(i) of the ATX
Disclosure Schedule, ATX has complied with and is in compliance with all
regulations and laws applicable to its operations under the Communications
Permits, except where any such failure would not individually or in the
aggregate have a Material Adverse Effect. ATX is in compliance with, and its
businesses have operated in compliance with, the Communications Act of 1934, as
amended, FCC regulations, or any applicable state laws or regulations, and has
filed all tariffs, registrations and reports and paid all required fees,
including any renewal applications, required by the Communications Act of 1934,
as amended, or any applicable state regulations and has complied with the terms
of each such tariff or regulation, except where any such failure would not
individually or in the aggregate have a Material Adverse Effect. There is no
action, suit, investigation or other proceeding pending or, to ATX's knowledge,
threatened against ATX which might materially adversely affect the
Communications Permits, or the assignment of the Communications Permits to
CoreComm. No event has occurred with respect to the Communications Permits
which, after notice or lapse of time, or both, would permit revocation or
termination thereof, or would result in any impairment of the rights of the
holder of the Communications Permits or the imposition of a forfeiture against
ATX or any subsequent holder of the Communications Permits with respect to the
operation of the facilities authorized thereby.
(g) ATX has delivered to CoreComm correct and complete
copies of (a) ATX's Communications Permits and the applications related thereto
together with any pending applications filed by ATX for new or modified
facilities related to the purchased business, and (b) all other Permits and any
tariffs filed by ATX relating to the purchased business, and any applications
for additional or modified Permits to the purchased business.
3.11 Taxes.
(a) ATX has timely filed or will file (including any
applicable extension periods) all material tax reports, returns and forms
required to be filed by it on or before the Closing Date in the manner provided
by applicable federal, state, local or foreign tax laws. Copies of all material
tax returns for ATX in respect of all years not barred by the statute of
limitations have been
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delivered by ATX to CoreComm and all such returns are listed on Section 3.11 of
the ATX Disclosure Schedule.
(b) With respect to each of ATX's tax returns that has been
examined or audited by the Internal Revenue Service or a state, local or foreign
taxing authority (collectively, an "Authority"), which returns are identified on
the ATX Disclosure Schedule, all deficiencies asserted as a result of such
examinations or audits have been fully paid, adequately provided for or are
being contested in good faith, except where the failure to be fully paid,
adequately provided for or contested would not have a Material Adverse Effect
individually or in the aggregate. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any federal, state,
local or foreign tax return for any period.
(c) Except as set forth on Section 3.11 of the ATX
Disclosure Schedule, ATX has timely paid or will pay all federal, state, local
and foreign income, payroll, withholding, excise, sales, use, real and personal
property, use and occupancy, business and occupancy, business and occupation,
mercantile, real estate, capital stock and franchise or other tax (collectively,
"Taxes") due or claimed to be due on or before the Closing Date to the Internal
Revenue Service, to any Authority or to any Person from ATX by the Internal
Revenue Service or any Authority, other than any failures to make such payments
which have not had, individually or in the aggregate, a Material Adverse Effect.
Except as set forth on Section 3.11 of the ATX Disclosure Schedule, no tax liens
have been filed on any property or assets of ATX and no claims are being
asserted with respect to any Taxes which, individually or in the aggregate,
would have a Material Adverse Effect.
3.12 Consents and Approvals. Except for consents and approvals that
will be obtained prior to Closing (which such consents and approvals are listed
on Section 3.12 of the ATX Disclosure Schedule and which have heretofore been
provided to CoreComm for review) and consents and approvals the failure of which
to obtain would not, individually or in the aggregate, have a Material Adverse
Effect or prevent or impede or delay the consummation of the transactions
contemplated hereby, ATX is not required to obtain, transfer or cause to be
transferred any consent, approval or License of, or make any declaration, filing
or registration with, any third party or any governmental or regulatory
authority in connection with (a) the execution and delivery by ATX of this
Agreement or any agreement contemplated hereby, or (b) the consummation by ATX
of the transactions contemplated hereby or thereby except for those required
under (i) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder (the "HSR Act") (ii) the
Communications Act of 1934, as amended, and any regulations promulgated
thereunder (the "Communications Act") (iii) the rules and regulations of local,
state or foreign public utility commissions or similar local, state or foreign
regulatory bodies (each, a "PUC") and local, state and foreign Government
Entities identified on Section 3.12 of the ATX Disclosure Schedule pursuant to
applicable local state or foreign laws regulating the telephone or other
telecommunications business ("Utilities Laws") and (iv) the antitrust or other
competition laws of any jurisdiction.
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3.13 Contracts and Commitments.
(a) Section 3.13(a) of the ATX Disclosure Schedule sets
forth complete and accurate lists of the following:
(i) all real property and the location thereof and
the description of any structures located thereon that are leased by ATX,
together with the annual rental and unexpired lease term and identity of the
owner of any real property leased;
(ii) all employment, consulting or agency agreements
requiring payments in excess of $100,000 per annum to which ATX is a party or is
otherwise bound;
(iii) each instrument or agreement defining the terms
on which any debt of, or guarantees by, ATX in excess of $250,000 has been or
may be issued;
(iv) all outstanding loans or advances (excluding
advances for ordinary and necessary business expenses) by ATX to any of its
officers, directors or stockholders or any member of the immediate families of
such officers, directors or stockholders; and
(v) all contracts, commitments or agreements to
which ATX is a party or is otherwise bound and which involve future payments,
performance of services or delivery of goods to or by ATX for annual payments
(for any one or a series of related contracts) of at least $100,000.
(b) ATX and, to ATX's knowledge, all other parties to the
contracts, commitments, instruments and agreements listed in Section 3.13(a) of
the ATX Disclosure Schedule have complied with the provisions thereof in all
material respects, no party is in default thereunder, and no event has occurred
which, but for the passage of time or the giving of notice or both, would
constitute a default thereunder, other than those which, individually or in the
aggregate, would not have a Material Adverse Effect. Except as set forth on
Section 3.13(b) of the ATX Disclosure Schedule, no contract, commitment,
instrument or agreement listed in Section 3.13(a) of the ATX Disclosure Schedule
requires the consent of any party thereto in order to consummate the
transactions contemplated hereby (including, without limitation, the ATX Merger)
except for such consents the failure of which to obtain would not, individually
or in the aggregate, have a Material Adverse Effect or to prevent or impede or
delay the consummation of the transactions contemplated hereby.
(c) (i) Except as may be disclosed on Section 3.13(c)(i)
of the ATX Disclosure Schedule, ATX is not a party to or bound by any contracts
or commitments that require payments in excess of $100,000 per annum by any
party thereto and are not cancelable by ATX on notice of not longer than 30
days;
(ii) subject to obtaining any requisite consents of
third parties, the enforceability of the contracts and commitments referred to
in Section 3.13(a) will not be affected in any manner by the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby or by the other agreements referred to herein, other than those which,
individually or in the aggregate, would not have a Material Adverse Effect;
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(iii) Except as set forth on Section 3.13(c)(iii) of
the ATX Disclosure Schedule, ATX is not a party to or bound by any contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that require payments, or would
be reasonably expected to result in payments, in excess of $100,000 per annum
and are not cancelable by it on notice of not longer than 30 days and without
liability, penalty or premium or any agreement or arrangement providing for the
payment of any bonus or commission based on sales or earnings; and
(iv) Except as set forth on Section 3.13(c)(iv) of
the ATX Disclosure Schedule, ATX is not a party to or bound by any employment
agreement or any other agreement that contains any severance or termination pay,
liabilities or obligations.
(d) Section 1.2 of the ATX Disclosure Schedule is derived
from, and sets forth all capital expenditures which will be required by ATX in
order to carry out, the business plan of ATX referred to in Section 5.3 hereof
within the time periods contemplated by such business plan.
3.14 Insurance. ATX maintains policies of fire, medical, life,
liability, workers' compensation and other forms of insurance in such amounts,
with such deductibles and against such risks and losses as are, in ATX's
judgment, reasonable for the business and assets of ATX. All such insurance
policies are listed on Section 3.14 of the ATX Disclosure Schedule.
3.15 Certain Interests. Neither ATX nor any officer, director or
stockholder thereof, nor any of their respective Affiliates, spouses or
immediate family, has (a) any direct or indirect interest (other than the
ownership of less than one percent of the outstanding securities of a publicly
held company) in any corporation or business that is involved in or competes
with ATX, (b) any direct or indirect interest in any property or assets used by,
or relating to, ATX or its business, except through the ownership of shares of
ATX Common Stock or ATX Merger Sub Common Stock or (c) has a claim whatsoever
against, or owes any amount to, ATX, except for claims in the ordinary course of
business, such as accrued vacation pay, accrued benefits under Benefit Plans or
similar matters in any agreements in effect on the date hereof. Section 3.15 of
the ATX Disclosure Schedule sets forth a complete list of all agreements and
arrangements between ATX and each of its officers, directors, stockholders and
their respective spouses or immediate family and true and correct copies of all
such agreements and arrangements have been delivered to CoreComm.
3.16 Intellectual Property. Section 3.16 of the ATX Disclosure
Schedule sets forth a list of all patents, internet domain name registrations,
trademarks, servicemarks, trade names and copyrights (collectively, the
"Scheduled Intellectual Property") that ATX either owns or has a license to use.
ATX owns or is licensed to use all of its trade secrets, know-how, software and
other proprietary rights and all Scheduled Intellectual Property (collectively,
the "Intellectual Property"), free and clear of any Liens except for Liens which
would not have, individually or in the aggregate, a Material Adverse Effect.
None of ATX's Intellectual Property is subject to any pending or, to the
knowledge of ATX, threatened, challenge or reversion except for challenges or
reversions which would not have, individually or in the aggregate, a Material
Adverse Effect. To the knowledge of ATX, the conduct of the business of ATX as
now being conducted, and the use of ATX's Intellectual Property in the conduct
of such business, do not infringe or otherwise conflict with any trademarks,
patents, registrations, or other intellectual property or proprietary rights of
others, nor, has any claim
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been made that the conduct of such business as now being conducted infringes or
otherwise is covered by the intellectual property of a third party other than
claims which would not have, individually or in the aggregate, a Material
Adverse Effect. To the knowledge of ATX, none of its Intellectual Property is
currently being infringed by a third party.
3.17 Employee Benefit Plans.
(a) ATX has made available to CoreComm true and complete
copies of all employment, retention, severance, deferred compensation, change of
control or other agreements or contracts with any employee of ATX and Section
3.17 of the ATX Disclosure Schedule contains a list of all of the foregoing.
(b) ATX does not contribute to, maintain, have an actual or
contingent liability with respect to, or sponsor any plan subject to Title IV of
ERISA.
(c) ATX has made available to CoreComm with respect to each
Benefit Plan, a true and complete copy (or, to the extent no such copy exists,
an accurate description) thereof and, to the extent applicable: (i) any related
trust agreement or other funding instrument; (ii) the most recent determination
letter, if applicable; (iii) any summary plan description and other written
communications (or a description of any oral communications) by ATX to its
employees concerning the extent of the benefits provided under a Benefit Plan;
and (iv) for the three most recent years (A) the Form 5500 and attached
schedules; (B) audited financial statements, (C) actuarial valuation reports and
(D) attorney's response to an auditor's request for information.
(d) (i) With respect to each Benefit Plan, such plan has
been established and administered in accordance with its terms, and in
compliance with the applicable provisions of ERISA, the Code, and other
applicable laws, rules and regulations and no transaction prohibited by any
applicable statute or regulation, including Section 406 of ERISA or Section 4975
of the Code, has occurred with respect to any Benefit Plan that would
individually or in the aggregate be reasonably likely to result in material
liability to ATX; (ii) each Benefit Plan which is intended to be qualified
within the meaning of Section 401(a) of the Code is so qualified and has
received a favorable determination letter as to its qualification, and nothing
has occurred, whether by action or failure to act, that could reasonably be
expected to cause the loss of such qualification; (iii) no event has occurred
and no condition exists that would subject ATX or any of its subsidiaries either
directly or by reason of their affiliation with any member of their "Controlled
Group" (defined as any organization which is a member of a controlled group of
organizations within the meaning of Code sections 414(b), (c), (m) or (o)), to
any tax, fine, lien, penalty or other liability imposed by ERISA, the Code or
other applicable laws, rules and regulations; and (v) there are no actions,
suits or claims (other than routine claims for benefits) pending or threatened
against the Benefit Plans and, no facts exist which could give rise to any such
actions, suits, or claims that would be reasonably likely to result in material
liability to the Company with respect to the Benefit Plans.
(e) No Benefit Plan or other agreement or arrangement exists
that, as a result of the transactions contemplated by this Agreement, could
result in the payment to any present or former employee of ATX of any money or
other property or accelerate the time of, or increase the amount of payment to
which such person may otherwise be entitled or to provide any other rights
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or benefits to any present or former employee of ATX or any other person,
whether or not such payment would constitute a parachute payment within the
meaning of Section 280G of the Code. Except as set forth in the ATX Disclosure
Schedule, no employee or former employee of ATX will become entitled to any
bonus, retirement, severance, job security or similar benefit or enhancement of
such benefit (including acceleration of vesting or exercise of an incentive
award) as a result of the transactions contemplated hereby.
(f) ATX does not have any current or projected liability in
respect of post-employment or post-retirement health or medical or life
insurance benefits for retired, former or current employees of ATX nor maintains
any deferred compensation plan.
(g) No Benefit Plan or other agreement or arrangement exists
that, as a result of the transactions contemplated by this Agreement (including
the ATX Merger), could result in the payment by ATX to any present or former
employee of University City Housing ("UCH") of any money or other property or
accelerate the time of, or increase the amount of payment by ATX to which such
person may otherwise be entitled, or could result in the requirement that ATX
provide any other rights or benefits to any present or former employee of UCH or
any other person (as a result of such person's status as an employee of UCH),
including but not limited to, any severance payment, whether or not such payment
would constitute a parachute payment within the meaning of Section 280G of the
Code. No employee or former employee of UCH (as a result of such person's status
as an employee of UCH) is or will become entitled to any bonus, retirement,
severance, job security or similar benefit or enhancement of such benefit
(including acceleration of vesting or exercise of an incentive award) from ATX
as a result of the transactions contemplated hereby.
3.18 Labor Matters. None of the individuals employed by ATX or any of
its subsidiaries or affiliates is represented by a union. ATX has made no
collective bargaining agreements with respect to any current or former employees
of ATX or any of its subsidiaries or affiliates. No labor strike, picketing,
work stoppage, work slowdown, soliciting, petition for a representation election
or civil action, or other labor dispute has, within the last five years,
occurred or, to ATX's knowledge, has been threatened with respect to ATX.
3.19 Environmental Protection. ATX has obtained all Licenses under
federal, state and local laws, rules and regulations relating to pollution or
protection of the environment (collectively, the "Environmental Laws") required
for the operation of its business except for Licenses the lack of which would
not have a Material Adverse Effect individually or in the aggregate. ATX is in
compliance in all material respects with all terms and conditions of such
Licenses and all Environmental Laws and has not received any notice alleging
non-compliance. There is no civil, criminal or administrative action, suit,
demand, claim, investigation, proceeding, notice or demand letter pending or, to
the knowledge of ATX, threatened against ATX relating in any way to any
Environmental Laws. There are no past or present events or conditions relating
to ATX that may interfere with or prevent compliance in any material respect
with any Environmental Laws or that may give rise to any material common law or
other legal liability thereunder.
3.20 Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any broker's
or finder's fees or any similar commission or fee in connection with the
transaction contemplated by this Agreement, based upon arrangements made
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by or on behalf of ATX, except Donaldson, Lufkin & Jenrette Securities
Corporation, whose fees and expenses will be paid by ATX.
3.21 Accounting and Tax Matters. Neither ATX nor any of its
Affiliates has taken or agreed to take any action which would prevent the Merger
and the Recapitalization from constituting transactions qualifying as exchanges
under Section 351 of the Code and a merger under Section 368(a) of the Code.
3.22 Registration Statement; Proxy Statement/Prospectus. The
information supplied or to be supplied by ATX or its Affiliates for inclusion in
or incorporation by reference in the registration statement on Form S-4 pursuant
to which shares of ATX Common Stock issuable in the Merger and the
Recapitalization will be registered with the SEC (the "Registration Statement")
shall not at the time the Registration Statement is declared effective by the
SEC under the Securities Act of 1933, as amended, 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 or to be supplied by ATX for
inclusion in the proxy statement/prospectus (the "Proxy Statement") to be sent
to the stockholders of CoreComm in connection with its meeting of stockholders
to consider this Agreement and the Merger (collectively, the "Stockholders'
Meeting") shall not, on the date the Proxy Statement is first mailed to
stockholders of CoreComm at the time of the Stockholders' Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it was 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 Statement not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders'
Meeting which has become false or misleading. If at any time prior to the
Effective Time any event relating to ATX or any of its Affiliates, officers or
directors should be discovered by ATX which should be set forth in an amendment
to the Registration Statement or a supplement to the Proxy Statement, ATX shall
promptly inform CoreComm.
3.23 Non-Competition Agreements. Neither ATX nor any officer,
director, or key employee of ATX, is a party to any agreement, other than with
ATX or its predecessors, 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 ATX, or to the knowledge of ATX,
by CoreComm or any corporations affiliated with CoreComm.
3.24 Customers. No single customer of ATX generates greater than 2%
of the total sales of ATX. As of March 7, 2000, there were approximately 20,000
customers of ATX.
3.25 Legal Opinion. As of the date of execution of this Agreement,
ATX has received reasonable assurances from Klehr, Harrison, Harvey, Branzburg &
Ellers LLP, counsel to ATX, regarding its ability to deliver the opinion
required by Section 7.12 of the Agreement.
3.26 Full Disclosure. No representation or warranty of ATX contained
in this Agreement or which will be contained in the Escrow Agreement, and no
document furnished by or on behalf
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of ATX to CoreComm pursuant to this Agreement contains an untrue statement of a
material fact or omits to state a material fact required to be stated herein or
necessary to make the statements made, in the context in which made, not
materially false or misleading. There is no fact, event, circumstance or
condition that ATX has not disclosed to CoreComm in writing that has or would
have, insofar as ATX can now foresee, a Material Adverse Effect on ATX or the
ability of ATX to perform this Agreement or the Escrow Agreement.
3.27 NO OTHER REPRESENTATIONS OR WARRANTIES. EXCEPT AS SPECIFICALLY
AND EXPRESSLY SET FORTH IN THIS ARTICLE 3, (I) ATX MAKES NO REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, RELATING TO ATX, OR THE ASSETS OR BUSINESS OF ATX,
INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY AS TO VALUE,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR FOR ORDINARY PURPOSES, OR
ANY OTHER MATTER AND (II) ATX MAKES NO, AND HEREBY DISCLAIMS ANY, OTHER
REPRESENTATIONS OR WARRANTIES REGARDING THE ASSETS OR THE BUSINESS OF ATX.
IV. REPRESENTATIONS AND WARRANTIES OF CORECOMM
Except as set forth in the CoreComm Disclosure Schedule delivered by
CoreComm to ATX prior to the execution of this Agreement (the "CoreComm
Disclosure Schedule") (each section of which qualifies the correspondingly
numbered representation and warranty or covenant to the extent specified
therein) or in the CoreComm SEC Reports, CoreComm represents and warrants to ATX
as follows:
4.1 Organization, Etc. CoreComm is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. CoreComm has the power and authority to conduct its business as
it is currently being conducted and to own, operate and lease the property and
assets that it now owns and leases. CoreComm is duly qualified or licensed and
in good standing to do business and has paid all relevant franchise and similar
taxes in each jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification or license necessary,
except where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect. The copies of the Memorandum of
Association (the "CoreComm Memorandum of Association") and Bylaws (the "CoreComm
Bylaws") of CoreComm, as previously delivered to ATX by CoreComm, are complete
and correct copies of such instruments as currently in effect.
4.2 Authorization. CoreComm has all power and authority necessary to
execute and deliver this Agreement, to perform its obligations under this
Agreement and consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement, the performance of CoreComm's
obligations hereunder and the consummation of the transactions contemplated
hereby has been duly authorized by CoreComm and no corporate proceedings on the
part of CoreComm are necessary to authorize this Agreement or to consummate such
transactions. This Agreement has been duly executed and delivered by CoreComm
and constitutes a valid and binding obligation of CoreComm, enforceable against
CoreComm in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium
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and similar laws relating to or affecting creditors rights generally, or by
general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.3 Capitalization.
(a) The authorized capital stock of CoreComm consists of
75,000,000 shares of common stock par value $.01 per share, and 1,000,000 shares
of preferred stock, par value $.01 per share. As of March 6, 2000, (i)
39,213,036 shares of CoreComm Common Stock were issued and outstanding, all of
which are validly issued, fully paid and nonassessable and no shares of
preferred stock were issued and outstanding, and (ii) no shares of CoreComm
Common Stock are held in the treasury of CoreComm. Section 4.3 of the CoreComm
Disclosure Schedule shows, as of March 6, 2000, the number of shares of CoreComm
Common Stock reserved for future issuance pursuant to (i) stock options granted
and outstanding as of the date hereof, the plans under which such options were
granted and award agreements pursuant to which "non-plan" options were granted
(collectively, the "CoreComm Stock Plans"), (ii) the conversion of CoreComm's
issued and outstanding 6% convertible subordinated notes due 2006; and (iii) the
exercise of outstanding warrants. As of the date hereof, no other shares of
CoreComm Common Stock are issued and outstanding. All shares of CoreComm Common
Stock subject to issuance as specified above are duly authorized and, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be validly issued, fully paid and nonassessable.
There are no obligations, contingent or otherwise, of CoreComm to repurchase,
redeem or otherwise acquire any shares of CoreComm Common Stock.
(b) Except as reserved for future grants of options under
the CoreComm Stock Plans and as set forth on Section 4.3 of the CoreComm
Disclosure Schedule, (i) there are no equity securities of any class of
CoreComm, or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding; (ii) there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which CoreComm is a party or by which it is bound obligating
CoreComm to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of equity securities of CoreComm or obligating to grant,
extend, accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement; and (iii) there are no voting
trusts, proxies or other voting agreements or understandings with respect to the
shares of equity securities of CoreComm.
4.4 No Violation. Except as set forth on Section 4.4 of the CoreComm
Disclosure Schedule, neither the execution or delivery of this Agreement or any
agreement contemplated hereby by CoreComm, nor the performance by CoreComm of
the transactions contemplated hereby or thereby violates, conflicts with,
results in a breach of or constitutes a default (or an event or condition that,
with notice or lapse of time or both, would constitute a default) under, gives
others any right of termination, acceleration, amendment, cancellation or
revocation of or results in the termination, amendment, cancellation or
revocation of, or accelerates the performance required by, or causes the
acceleration of the maturity of any liability or obligation pursuant to, or
results in the creation or imposition of any Lien upon any of the property or
assets of CoreComm under (a) the CoreComm Memorandum of Association or the
CoreComm Bylaws or (b) except as individually or in the aggregate would not have
a Material Adverse Effect on any Law or any Contract to which
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CoreComm is a party or by which CoreComm or its assets or properties is or may
be bound or affected.
4.5 SEC Filings; Financial Statements.
(a) CoreComm has timely filed all forms, reports and
documents filed or required to be filed by CoreComm with the SEC since January
1, 1999 (collectively, the "CoreComm SEC Reports") and has made the CoreComm SEC
Reports available to ATX. The CoreComm SEC Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act") and the Securities
Exchange Act of 1934 (the "Exchange Act"), as the case may be, and (ii) did not
at the time they were filed (or if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in such CoreComm SEC Reports or necessary in order to make the statements
in such CoreComm SEC Reports, in the light of the circumstances under which they
were made, not misleading. CoreComm does not know of any fact, event or
circumstance that has occurred since the date of the last CoreComm SEC Report,
or that now exists, that (i) would have been required to be disclosed in a
CoreComm SEC Report if it had occurred prior to the date thereof, or (ii) that
has had or would have a Material Adverse Effect individually or in the
aggregate.
(b) Each of the consolidated financial statements
(including, in each case, any related notes) contained in the CoreComm SEC
Reports complied as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto, was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, in
conformity with the requirements of Form 10-Q under the Exchange Act) and fairly
presented in all material respects the consolidated financial position of
CoreComm as of the dates and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount. The CoreComm SEC
Reports contain a balance sheet as of September 30, 1999 which shall be referred
to as the "CoreComm Balance Sheet". September 30, 1999 shall be referred to as
the "CoreComm Balance Sheet Date."
4.6 Absence of Certain Changes. Except as disclosed in the CoreComm
SEC Reports or in the CoreComm Disclosure Schedule, since the CoreComm Balance
Sheet Date, there has not been any condition, event or occurrence that would
have a Material Adverse Effect to CoreComm, individually or in the aggregate.
4.7 Consents and Approvals. Except for consents and approvals that
will be obtained prior to Closing and except for those consents and approvals
with regard to ATX's Communication Permits that are listed in Sections 3.10(d)
and 3.12 of the ATX Disclosure Schedule (the "ATX Communications Consents")
(which consents and approvals other than the ATX Communications Consents are
listed in Section 4.7 of the CoreComm Disclosure Schedule and which have
heretofore been provided to ATX for review) and consents and approvals the
failure of which to obtain would not, individually or in the aggregate, have a
Material Adverse Effect or prevent or impede or delay
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the consummation of the transactions contemplated hereby, CoreComm is not
required to obtain, transfer or cause to be transferred any consent, approval or
License of, or make any declaration, filing or registration with, any third
party or any governmental or regulatory authority in connection with (a) the
execution and delivery by CoreComm of this Agreement or any agreement
contemplated hereby, or (b) the consummation by CoreComm of the transactions
contemplated hereby or thereby except for those required under (i) the HSR Act,
(ii) the Communications Act, (iii) the rules and regulations of any PUC and
local, state and foreign Government Entities identified in the CoreComm
Disclosure Schedule pursuant to applicable Utilities Laws and (iv) the antitrust
or other competition laws of any jurisdiction.
4.8 Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any broker's
or finder's fees or any similar commission or fee in connection with the
transaction contemplated by this Agreement, based upon arrangements made by or
on behalf of CoreComm, except Goldman, Sachs & Co., whose fees and expenses will
be paid by CoreComm.
4.9 Accounting and Tax Matters. Neither CoreComm nor any of its
Affiliates has taken or agreed to take any action which would prevent the
Mergers and the Recapitalization from constituting transactions qualifying as
exchanges under Section 351 of the Code and a merger under Section 368(a) of the
Code.
4.10 Registration Statement; Proxy Statement/Prospectus. The
information supplied or to be supplied by CoreComm or its Affiliates for
inclusion in or incorporation by reference in the Registration Statement shall
not at the time the Registration Statement is declared effective by the SEC
under the Securities Act, 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 or to be supplied by CoreComm for inclusion
in the Proxy Statement shall not, on the date the Proxy Statement is first
mailed to stockholders of CoreComm, at the time of the Stockholders' Meeting and
at the Effective Time, contain any statement which, at such time and in light of
the circumstances under which it was 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 Statement not false or misleading, or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders'
Meeting which has become false or misleading. If at any time prior to the
Effective Time any event relating to CoreComm or any of its Affiliates, officers
or directors should be discovered by CoreComm which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
CoreComm shall promptly inform ATX.
4.11 Fairness Opinion. CoreComm has received an opinion from Goldman,
Sachs & Co., dated March 9, 2000, that the transactions contemplated herein are
fair, from a financial point of view, based on information available as of the
date of the opinion, and such opinion has not been withdrawn.
4.12 Legal Opinion. As of the date of execution of this Agreement,
CoreComm has received reasonable assurances from Paul, Weiss, Rifkind, Wharton
and Garrison, counsel to
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CoreComm and from Kelley, Drye and Warren LLP, regulatory counsel to ATX,
regarding each firm's ability to deliver the opinions required by Section 6.19
of the Agreement.
4.13 NO OTHER REPRESENTATIONS OR WARRANTIES. EXCEPT AS SPECIFICALLY
AND EXPRESSLY SET FORTH IN THIS ARTICLE 4, (I) CORECOMM MAKES NO REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, RELATING TO CORECOMM, OR THE ASSETS OR BUSINESS
OF CORECOMM, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY AS TO
VALUE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR FOR ORDINARY
PURPOSES, OR ANY OTHER MATTER AND (II) CORECOMM MAKES NO, AND HEREBY DISCLAIMS
ANY, OTHER REPRESENTATIONS OR WARRANTIES REGARDING THE ASSETS OF OR THE BUSINESS
OF CORECOMM.
V. OBLIGATIONS OF ATX AND CORECOMM
5.1 Other Transactions. From and after the date hereof and
continuing until the Closing or the earlier termination of this Agreement
pursuant to Article 8 hereof, ATX agrees that it will not and will not authorize
any officer, director, employee or agent of ATX or any Affiliate of ATX to, or
authorize any investment banker, attorney, accountant or other representative
retained by ATX to, directly or indirectly, without the written consent of
CoreComm, solicit or encourage, furnish any information with respect to ATX to
any Person in connection with, or engage in any discussions with any other
Person in connection with, any proposal for a merger or other business
combination involving ATX or for the acquisition of a substantial equity
interest in ATX or a substantial portion of ATX's assets, other than as
contemplated by this Agreement.
5.2 Supplemental Disclosure. Each of ATX and CoreComm shall have the
continuing obligation promptly to supplement or amend the ATX Disclosure
Schedule or the CoreComm Disclosure Schedule, as the case may be, with respect
to any matter arising or discovered after the date hereof that, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the ATX Disclosure Schedule or the CoreComm Disclosure Schedule, as
the case may be; provided, however, that for purposes of the rights and
obligations of the parties hereunder, any such supplemental or amended
disclosure shall not be deemed to have been disclosed as of the date of this
Agreement unless agreed to in writing by the parties. Notwithstanding the
delivery of new ATX Disclosure Schedules or new CoreComm Disclosure Schedules,
no representation or warranty set forth herein shall be deemed modified by the
information set forth in such new ATX Disclosure Schedules or new CoreComm
Disclosure Schedules unless the other party hereto accepts such new ATX
Disclosure Schedules or new CoreComm Disclosure Schedules in writing; provided
that completion of Closing by the other party hereto shall be deemed acceptance
of new ATX Disclosure Schedules or new CoreComm Disclosure Schedules delivered
pursuant to this Section 5.2.
5.3 Conduct of Business. From the date of this Agreement to the
Closing, other than as set forth on Section 5.3 of the ATX Disclosure Schedule,
ATX shall conduct its business (and ATX shall conduct the business of ATX Merger
Sub) only in the ordinary course and consistent with past practice and the
business plan of ATX, which business plan has previously been delivered by ATX
to CoreComm. Without limiting the generality of the foregoing, and except as
otherwise expressly
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provided in this Agreement or consented to in writing by CoreComm from the date
of this Agreement to the Closing, ATX shall:
(a) use its reasonable best efforts to preserve its business
organization and its current relationships with its employees, suppliers,
distributors, customers, subscribers and others having business relationships
with it and to keep available to it the services of its employees;
(b) not split, combine, reclassify, issue, deliver, sell,
pledge or otherwise encumber or subject to any Lien, any equity interests, or
any rights, options or warrants to acquire any shares of capital stock, or
declare, set aside or pay any distribution in respect of any equity interest, or
redeem, purchase or otherwise acquire any equity interest;
(c) through July 31, 2000 make capital expenditures set
forth in Section 1.2 of the ATX Disclosure Schedule, at the time called for by
such Section, and after July 31, 2000, such further capital expenditures as
required to execute its current business plan within the time periods
contemplated thereby but only to the extent (i) requested by CoreComm and (ii)
that CoreComm is willing to provide by loan the funds required therefor;
(d) not take any action which would have resulted in a
breach of Section 3.7 had such action taken place after the ATX Balance Sheet
Date, but prior to the date hereof;
(e) not take any action that would result in any of its
representations or warranties set forth in this Agreement becoming untrue or
cause any of the conditions to the Closing set forth in Article 6, to not be
satisfied, other than those actions that would not materially adversely affect
ATX's ability to consummate the transactions contemplated by this Agreement;
(f) 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 or acquire the securities of any other Person;
(g) not sell, lease, license, mortgage, encumber, subject to
Lien or otherwise surrender, relinquish, encumber, or dispose of any assets
other than the disposition of obsolete or damaged assets in the ordinary course
of its business;
(h) not change any method of accounting or accounting
practice used by them, except for any change required by this Agreement or by
United States generally accepted accounting principles;
(i) 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 ATX, except in the ordinary course of business and
consistent with past practice, or establish, adopt or enter into any collective
bargaining agreement;
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(j) amend its articles of organization, by-laws or other
comparable organizational documents, except for any change required by this
Agreement;
(k) 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;
(l) 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, except for indebtedness incurred on reasonable commercial terms for the
purpose of funding capital expenditures contemplated by Section 1.2 of the ATX
Disclosure Schedule;
(m) not take or agree to take any action that would prevent
the Merger and Recapitalization from qualifying as exchanges under Section 351
of the Code or as reorganizations under Section 368 of the Code;
(n) not pay any bonus or other extraordinary compensation to
any ATX Stockholder except to the extent otherwise expressly permitted by this
Agreement; and
(o) not agree or commit to do any of the foregoing.
Further, ATX hereby covenants that ATX Merger Sub shall conduct no
activity following its incorporation other than in connection with the
transactions contemplated by this Agreement.
5.4 Confidentiality. ATX and CoreComm shall hold, and shall cause
their respective Affiliates, employees, agents, consultants and advisors to
hold, in strict confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of law (including, without
limitation, disclosure requirements under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, or the requirement
of any stock exchange or the NASDAQ National Market), all documents and
information concerning the other parties furnished to it by any other party or
its representatives in connection with the transaction contemplated by this
Agreement (except to the extent that such information shall be shown to have
been (a) previously known by the party to which it was furnished, (b) in the
public domain through no fault of such party or (c) later lawfully acquired from
other sources by the party to which it was furnished), and each party shall not
release or disclose such information to any other person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors in
connection with the transaction contemplated by this Agreement. Each party shall
be deemed to have satisfied its obligation to hold confidential information
concerning or supplied by the other party if it exercises the same care as it
takes to preserve confidentiality for its own similar information.
5.5 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable after the execution of this
Agreement, ATX and CoreComm shall jointly prepare and file with the SEC the
Proxy Statement and the Registration Statement in which the Proxy Statement will
be included. Such Registration Statement shall register
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the shares to be issued under the Merger and, to the extent legally permissible,
the shares of ATX Common Stock to be issued in the Recapitalization, and, if
legally permitted, shall also register the resale of the shares of ATX
Convertible Preferred Stock (including the shares of ATX Common Stock issuable
upon conversion thereof) to be issued pursuant to the Recapitalization. CoreComm
and ATX shall use their reasonable best efforts to cause the Registration
Statement to become effective as soon after such filing as practicable. The
Proxy Statement shall include the recommendations of the Board of Directors of
CoreComm in favor of this Agreement and the Merger.
(b) CoreComm and ATX shall use their reasonable best efforts
make all necessary filings with respect to the Merger under the Securities Act
and the Exchange Act and applicable state blue sky laws and the rules and
regulations thereunder.
5.6 Stockholders' Meeting. CoreComm will take, in accordance with
applicable law and the CoreComm Memorandum of Association and the CoreComm
Bylaws, all actions necessary to convene the meeting of holders of CoreComm
Common Stock (the "CoreComm Stockholders' Meeting") as promptly as practicable
after the Registration Statement is declared effective to consider and vote upon
the adoption of this Agreement and the Domestication Merger. Subject to
fiduciary and other legal obligations under applicable law and the terms of this
Agreement, CoreComm's Board of Directors shall recommend that the stockholders
of CoreComm adopt this Agreement and thereby approve the transactions
contemplated hereby and shall take all lawful action to solicit such adoption.
5.7 Cooperation; Regulatory Filings.
(a) Subject to the terms and conditions of this Agreement,
each party hereto will use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate the transaction
contemplated by this Agreement as soon as practicable after the date hereof
(including furnishing all information required by the FCC, any State regulatory
agency or commission or any municipal authority). In furtherance and not in
limitation of the foregoing, each of CoreComm and ATX shall (i) make an
appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transaction contemplated hereby as promptly as practicable
and to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act and to
otherwise use its reasonable best efforts to cause the expiration or termination
of the applicable waiting periods under the HSR Act as soon as practicable; and
(ii) make an appropriate filing with the Federal Communications Commission (the
"FCC") requesting the FCC's written consent to the transaction contemplated
hereby (the "FCC Consent Application").
(b) Each party hereto shall, in connection with the efforts
referenced in this Section 5.7 to obtain all requisite approvals and
authorizations for the transaction contemplated by this Agreement under the HSR
Act, the Communications Act or any other Regulatory Law (as defined below), (i)
cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry, including
any proceeding initiated by a private party; (ii) promptly inform the other
parties of any communication received by such party from, or given by such party
to, the Antitrust Division of the Department of Justice
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(the "DOJ"), the Federal Trade Commission (the "FTC"), the FCC or any other
Governmental Entity and of any material communication received or given in
connection with any proceeding by a private party, in each case regarding the
transaction contemplated hereby, and (iii) permit the other party to review any
communication given by it to, and consult with each other in advance of any
meeting or conference with, the DOJ or any such other Governmental Entity or, in
connection with any proceeding by a private party, with any other Person, and to
the extent permitted by the DOJ or such other applicable Governmental Entity or
other Person, give the other party the opportunity to attend and participate in
such meetings and conferences. For purposes of this Agreement, "Regulatory Law"
means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the
Communications Act, the Federal Trade Commission Act, as amended, and all other
federal, state and foreign, if any, statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines and other laws that are designed
or intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade or lessening of competition
through merger or acquisition.
(c) In furtherance and not in limitation of the covenants of
the parties contained in this Section 5.7, if any administrative or judicial
action or proceeding, including any proceeding by a private party, is instituted
(or threatened to be instituted) challenging the transaction contemplated by
this Agreement as violative of any Regulatory Law, each of the parties hereto
shall cooperate in all respects with each other and contest and resist any such
action or proceeding and use its respective reasonable best efforts to have
vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent, that is in effect and
that prohibits, prevents or restricts consummation of the transaction
contemplated by this Agreement.
(d) If any objections are asserted with respect to the
transaction contemplated hereby under any Regulatory Law or if any suit is
instituted by any Governmental Entity (including any foreign governmental
entity) or any private party challenging the transaction contemplated hereby as
violative of any Regulatory Law, each of the parties hereto shall use its
reasonable best efforts to resolve (through litigation, settlement or otherwise
as CoreComm and ATX shall reasonably determine) any such objections or challenge
as such Governmental Entity or private party may have to such transaction under
such Regulatory Law so as to permit consummation of the transaction contemplated
by this Agreement.
(e) Each party hereto shall consult with, and utilize
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable (including using its
best efforts to provide all appropriate and necessary assistance to the other
parties hereto) with respect to the obtaining of all permits, consents,
approvals and authorizations of all third parties and Governmental Entities
necessary or advisable in order to consummate the transaction contemplated by
this Agreement and each party will keep the other party apprized of the status
of matters relating to completion of the transaction contemplated hereby.
(f) Nothing in this Section 5.7 shall require CoreComm or
ATX to sell, hold separate or otherwise dispose of or conduct its business in a
specified manner, or permit the sale, holding separate or other disposition of,
any of its assets or the conduct of its business in a specified manner, or agree
to payments or modifications to contractual arrangements, whether as a condition
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to obtaining any approval from a Governmental Entity or any permits, consents,
approvals or authorization of any other Person or for any other reason, if in
CoreComm's or ATX's sole judgment, as the case may be, such sale, holding
separate or other disposition of, or the conduct of its business in a specified
manner or agreement or modification, would reasonably be expected to materially
diminish the value of the transaction contemplated hereby to CoreComm or ATX, as
the case may be.
(g) CoreComm shall have the right to have its designated
representatives, as provided to ATX from time to time (the "Designated CoreComm
Representatives"), present within normal business hours and without material
disruption to the business of ATX for consultation at ATX's principal offices
from the date hereof until the Closing Date. Such Designated CoreComm
Representatives shall have the right to review and become familiar with the
conduct of the business of ATX 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 5.7(g)). CoreComm shall
take all reasonable actions necessary to ensure that its Designated CoreComm
Representatives will be readily available during normal business hours. Without
written notice to and favorable consultation (which shall not be unreasonably
withheld, delayed or conditioned with respect to time or content) with the
Designated CoreComm Representatives, ATX 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 obligations or the business of ATX following the date hereof: (i) any
entering into, termination or material amendment of, or waiver of any ATX's
rights in respect of, any material contracts; (ii) any purchase order in excess
of $100,000 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 of ATX's customary profit margins.
5.8 Public Announcements. CoreComm and ATX shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to this Agreement or the transaction contemplated hereby and shall
not issue any press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld or
delayed except as may be required by applicable law or any requirement of any
stock exchange on which the stock of any party is listed.
5.9 Effect of Due Diligence. In connection with CoreComm's
investigation of the business of ATX, CoreComm may have received from or on
behalf of ATX certain projections, including projected statements of operating
revenues and income from operations of ATX. CoreComm acknowledges that there are
uncertainties inherent in attempting to make such estimates, projections and
other forecasts and plans, that CoreComm is familiar with such uncertainties,
that CoreComm is taking full responsibility for making its own evaluation of the
adequacy and accuracy of all estimates, projections and other forecasts and
plans so furnished to it (including the reasonableness of the assumptions
underlying such estimates, projections and forecasts), and that CoreComm shall
have no claim against ATX, or any of its Affiliates with respect thereto.
Accordingly, ATX makes no representation or warranty with respect to such
estimates, projections
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and other forecasts and plans (including the reasonableness of the assumptions
underlying such estimates, projections and forecasts).
5.10 Letters from Accountants; New Financial Statements.
(a) CoreComm shall use its reasonable best efforts to cause
to be delivered to ATX "cold comfort" letters of Ernst & Young LLP its
independent public accountants, dated the date on which the Registration
Statement shall become effective and as of the Effective Time, respectively, and
addressed to ATX, in form and substance reasonably satisfactory to ATX and
comparable in scope and substance to letters customarily delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement and transactions such as the transactions
contemplated by this Agreement.
(b) On or prior to March 15, 2000, ATX shall provide to
CoreComm revised versions of the ATX Financial Statements and the revised ATX
Balance Sheet, which will present the combined balance sheets of the ATX
Partnerships at December 31, 1997, December 31, 1998 and December 31, 1999 and
the related combined statements of income, shareholder's equity and changes in
financial position for the years then ended, including the footnotes thereto,
and shall be certified by BDO Seidman, LLP, and shall fairly present the
consolidated financial position of ATX and/or the ATX Partnerships at such dates
and the consolidated results of operations of the ATX Partnerships and their
subsidiaries for such respective periods, in each case in accordance with
generally accepted accounting principles consistently applied for the periods
covered thereby. (The foregoing consolidated financial statements of ATX and the
ATX Partnerships are herein called the "GAAP Audited Financials.") Prior to the
filing of the Registration Statement, ATX shall use its reasonable best efforts
to cause its accountants to supply to CoreComm the GAAP Audited Financials.
(c) ATX shall use its reasonable best efforts to cause to be
delivered to CoreComm "cold comfort" letters of BDO Seidman LLP, its independent
public accountants, dated the date on which the Registration Statement shall
become effective and as of the Effective Time, respectively, and addressed to
CoreComm in form and substance reasonably satisfactory to CoreComm and
comparable in scope and substance to letters customarily delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement and transactions such as the transaction
contemplated by this Agreement.
(d) ATX shall provide CoreComm with any and all further
financial statements or information which is necessary or advisable to prepare
or include in the Registration Statement.
5.11 Nasdaq Application. ATX shall promptly prepare and submit an
application to The Nasdaq National Market to list the shares of ATX Common Stock
to be issued in the Merger and the Recapitalization and shall use its best
efforts to cause such shares of ATX Common Stock to be approved for listing by
The Nasdaq National Market, subject to official notice of issuance, prior to the
Closing Date.
5.12 Stock Plans and Options. CoreComm currently intends to implement
a stock option plan under which award grants may be made to post-Effective Time
employees of ATX and its
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subsidiaries, and that such post-Effective Time employees shall include persons
who prior to the Effective Time were employees of ATX or its subsidiaries as
well as of CoreComm or its subsidiaries; it being understood that (i) nothing
set forth herein shall be deemed to grant to any specific employee of
post-Effective Time ATX or its subsidiaries any right to receive an option grant
under any such plan, and (ii) the decision as to whether or not any such plan
shall be implemented, the terms of any such stock option plan, and the terms of
any grant made thereunder, shall be within the discretion of post-Effective Time
ATX, its board of directors, and any committee of such board which may
administer such plan.
5.13 Access and Investigations. Prior to the Closing Date, ATX agrees
that CoreComm shall be entitled to, through its employees and representatives,
including Paul, Weiss, Rifkind, Wharton & Garrison, and Ernst & Young LLP
(collectively, their "Representatives"), to make such investigation of the
properties, businesses and operations of ATX, and such examination of the books,
records and financial condition of ATX, as it wishes. Any such investigation and
examination shall be conducted at a reasonable time, upon reasonable advance
notice and under reasonable circumstances and ATX shall cooperate fully therein;
provided, however, that no such investigation or examination shall interfere
with the day-to-day operations of ATX. No investigation by CoreComm shall
diminish or obviate any of the representations, warranties, covenants or
agreements of ATX contained in this Agreement. In order that CoreComm may have
full opportunity to make such physical, business, accounting and legal review,
examination or investigation as it may wish of the affairs of ATX, ATX shall
make available to the Representatives during such period all such information
and copies of documents concerning the affairs of ATX as the Representatives may
reasonably request, and shall permit the Representatives access to the
properties of ATX in all parts thereof.
5.14 Communications Licenses and Authorizations. ATX shall obtain and
maintain in full force and effect all Permits, and any renewals thereof, from
the FCC and any appropriate State PUC and any municipal authority, and make all
filings and reports and pay all fees reasonably necessary or required for the
continued operation of its business, as and when such Permits, filings or
reports are necessary or required, other than any Permits, filings or reports
which would not, individually or in the aggregate, have a Material Adverse
Effect.
5.15 FCC/State PUC Applications.
(a) As promptly as practicable after the execution and
delivery of this Agreement, ATX shall prepare and deliver to CoreComm ATX's
completed portion of all appropriate applications for FCC State PUC and
municipal authority approval, and such other documents as may be required, with
respect to the assignment of ATX's Permits to CoreComm (collectively, the
"FCC/State PUC Applications"). As promptly as practicable after the execution
and delivery of this Agreement, CoreComm shall prepare and deliver to ATX,
CoreComm's portion of all appropriate FCC/State PUC Applications. As soon as
practical after the execution and delivery of this Agreement, the parties shall
file, or cause to be filed, the FCC/State PUC Applications. If the Closing shall
not have occurred for any reason within any applicable initial consummation
period relating to the FCC's or the State PUCs grant of the FCC/State PUC
Applications, and neither ATX nor CoreComm shall have terminated this Agreement
pursuant to Section 8.1, CoreComm and ATX shall jointly request one or more
extensions of the consummation period of such grant. No party
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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 or State PUCs not to grant approval of the FCC/State PUC
Applications or materially delay either such approval or the consummation of the
assignment of Permits and the Customer Base of ATX.
(b) CoreComm and ATX shall each pay one-half of any FCC or
State PUC fees that may be payable in connection with the filing or granting of
approval of the FCC/State PUC Applications. Except as set forth in the
immediately preceding sentence, ATX and CoreComm each shall bear its own
expenses in connection with the preparation and prosecution of the FCC/State PUC
Applications. ATX and CoreComm each shall use its reasonable best efforts to
prosecute the FCC/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/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.
(c) Promptly upon execution of this Agreement, each of ATX
and CoreComm shall take all reasonable actions necessary to comply promptly with
all legal requirements which may be imposed on ATX or CoreComm, as the case may
be, with respect to this Agreement and the transactions contemplated hereby
(including furnishing all information required by the FCC or any state
regulatory agency or commission) and shall take all reasonable actions necessary
to cooperate promptly with and furnish information to CoreComm or ATX, as the
case may be, in connection with any such requirements imposed upon ATX or
CoreComm in connection with this Agreement and the transactions contemplated
hereby.
5.16 Stockholders Agreement. At or prior to the Closing, each of the
ATX Stockholders, CoreComm and ATX, shall execute and deliver to CoreComm the
Stockholders Agreement, substantially in the form attached as Exhibit C hereto.
5.17 Transition Services Agreement. At or prior to the Closing, each
of ATX and CoreComm shall execute and deliver the Transition Services Agreement,
substantially in the form attached as Exhibit D hereto.
5.18 Reincorporation and Acquisition. Notwithstanding anything to the
contrary contained herein, CoreComm shall be permitted to take any and all
action which may be deemed advisable or necessary (i) in order to provide for
the reincorporation of CoreComm from Bermuda to Delaware and (ii) to enter into
and consummate the potential transaction identified by CoreComm to ATX on March
6, 2000.
5.19 Termination of Agreements. At the Effective Time, all contracts
between ATX and the ATX Stockholders or any of their respective Affiliates or
family members (other than this Agreement, the Escrow Agreement, the
Indemnification Escrow Agreement and the Senior Management Employment Agreements
(as defined in Section 5.31)) shall be terminated and ATX shall have no further
liability or obligations thereunder, except that the leases identified on
Exhibit E shall continue in effect beyond the Effective Date but shall be
amended on the Effective Date as described on Exhibit E.
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5.20 Escrow Agreements. At or prior to the Closing, (i) each of ATX,
the ATX Stockholders, CoreComm and the escrow agent thereunder shall execute and
deliver the Escrow Agreement contemplated by Section 1.2, and (ii) each of ATX,
the ATX Stockholders and the Escrow Agent thereunder, shall execute and deliver
the Indemnification Escrow Agreement contemplated by Section 9.7, each of which
shall contain usual and customary terms and conditions for the transactions
contemplated hereby be in such form as shall be reasonably satisfactory to the
respective parties thereto and CoreComm.
5.21 Phantom Unit Plan. At the Effective Time, ATX Stockholders shall
take all actions reasonably required to satisfy ATX's obligations pursuant to
ATX's 1998 Phantom Unit Plan, all of which funds and/or securities utilized to
satisfy such obligations shall be derived from the Exchange Consideration, as
further delineated on Exhibit F hereto. ATX shall use its reasonable best
efforts to cause each Person receiving any consideration in satisfaction of
ATX's obligations pursuant to the 1998 Phantom Unit Plan to agree to enter into
agreements that include the terms outlined on Exhibit I.
5.22 Name. Following the Effective Time, the parties hereto shall
cooperate and take all actions required to cause ATX's name to be changed from
"ATX Telecommunications Services, Inc." to "CoreComm Limited".
5.23 Existing Stockholders' Agreement. On the Closing Date, the ATX
Stockholders and ATX shall terminate that certain Stockholders' Agreement dated
as of February 9, 2000 by and among Buruchian, Gravina, Karp and ATX (the
"Existing Stockholders' Agreement").
5.24 Negotiation of Term Sheets. Promptly following the date of
execution of this Agreement, ATX, CoreComm and the ATX Stockholders shall
negotiate the agreements or instruments contemplated by the term sheets
identified in Sections 1.2 and 5.19 of this Agreement, each of which shall be
consistent with such term sheets and otherwise be in form and substance
reasonably satisfactory to such parties..
5.25 Operating Subsidiaries. Notwithstanding anything to the contrary
contained herein, ATX shall at the request of CoreComm take any and all action
which may be reasonably requested to place its operating assets at or
immediately prior to the Closing into one or more wholly-owned operating
subsidiaries.
5.26 Subchapter S Election. Notwithstanding anything to the contrary
contained herein, ATX shall take, and shall be permitted to take, any and all
action which may be deemed advisable or necessary in order to file Subchapter S
elections for the purposes of state and federal income taxes.
5.27 Assignment of Reimbursement Rights. As of the Effective Time,
ATX shall assign any right to reimbursement from health and welfare providers to
the ATX Stockholders.
5.28 Certificate of Incorporation, Etc. Each of CoreComm, ATX and the
ATX Stockholders shall use their best efforts to ensure that the Certificate
Incorporation and then By-laws
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of ATX immediately prior to the Effective Time shall be in the forms requested
by CoreComm. ATX shall take such action as may be necessary to effect Section
1.6 of this Agreement.
5.29 CoreComm Transactions. If prior to the Closing Date CoreComm
shall enter into a definitive agreement for a CoreComm Transaction, CoreComm
shall promptly notify ATX of such transaction. Nothing set forth in this
Agreement shall be deemed to prohibit or otherwise limit CoreComm from pursuing
and entering into agreements for or consummating CoreComm Transactions.
5.30 Protective Agreements. ATX shall insure that as of the Closing
Date each then current employee of ATX shall have executed ATX's standard
non-solicitation/confidentiality agreement in substantially the form previously
delivered to CoreComm.
5.31 Key Employee Employment Agreements. ATX shall use its reasonable
best efforts to enter into employment agreements to be effective from the
Closing Date with 15 key and/or management employees of ATX identified by
CoreComm (the "Identified Employees"), which employment agreements (the "Key
Employee Employment Agreements") shall contain the terms set forth on Exhibit I,
and shall also be otherwise in form and substance reasonably satisfactory to
CoreComm.
5.32 Gravina and Buruchian Employment Agreements. ATX shall offer to
enter into, and shall cause each of Gravina and Buruchian to enter into new
employment agreements with ATX to take effect on the Closing Date, which
agreements (the "Senior Management Employment Agreements") shall contain the
terms set forth on Exhibit I and shall otherwise be in form and substance
reasonably satisfactory to CoreComm.
5.33 Transaction Not Subject to Outside Conditions. The parties agree
that their respective obligations to consummate the transactions contemplated
hereby shall not be subject to, or intentionally delayed by any party hereto
pending satisfaction of, any condition not expressly provided for herein.
5.34 Working Capital Loans. If CoreComm requests ATX to make capital
expenditures following July 31, 2000, CoreComm shall loan to ATX the amount
required to fund such capital expenditures. Any such loan shall be at reasonable
commercial terms and collateral for a loan from CoreComm. If this Agreement
shall be terminated prior to the consummation of the Merger, all amounts
advanced by CoreComm to ATX shall be repaid, together with accrued unpaid
interest to the date of repayment and without set-off, not later than ten days
following such termination.
VI. CONDITIONS TO OBLIGATIONS OF CORECOMM
The obligations of CoreComm under this Agreement are subject to the
satisfaction or waiver (such waiver being the exclusive right of CoreComm), at
or before the Closing, of each of the following conditions:
6.1 Representations and Warranties. Each of the representations and
warranties of ATX contained herein, and the statements contained in any
schedule, instrument, list, certificate or writing
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delivered by ATX pursuant to this Agreement, that is qualified as to materiality
or Material Adverse Effect or which are contained in Section 3.5(b) shall be
true and correct as of the date when made and as of the Closing Date as if made
at and as of the Closing Date and each of such representations, warranties and
statements (other than those in Section 3.5(b)) that is not so qualified shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as if made at and as of the Closing Date (except, in each case,
for those representations, warranties and statements that address matters only
as of a particular date, in which case they shall be true and correct, or true
and correct in all material respects, as applicable, as of such date).
6.2 Performance. ATX shall have performed and complied with all
agreements, obligations, covenants and conditions required by this Agreement to
be performed or complied with by ATX at or prior to the Closing that are
qualified as to materiality or Material Adverse Effect and shall have performed
and complied in all material respects with all other agreements, obligations,
covenants and conditions required by this Agreement to be performed or complied
with by ATX at or prior to the Closing that are not so qualified as to
materiality.
6.3 No Proceeding or Litigation. There shall not be instituted or
pending any suit, action, investigation, inquiry or other proceeding by or
before any court or governmental or other regulatory or administrative agency or
commission requesting or looking toward an order, judgment or decree that
restrains or prohibits the consummation of the transactions contemplated hereby.
6.4 No Injunction. No statute, rule, regulation, executive order,
decree or injunction shall have been enacted, entered, promulgated or enforced
by any court or governmental authority that prohibits the consummation of the
transactions contemplated hereby.
6.5 Officer's Certificates. The Chief Executive Officer of ATX shall
have delivered to CoreComm a certificate, dated the Closing Date, certifying the
fulfillment of the conditions specified in Sections 6.1, 6.2 and 6.3.
6.6 Consents and Approvals. All Licenses, Permits, consents,
approvals and authorizations of all third parties and Governmental Entities
shall have been obtained that are necessary in connection with the execution and
delivery by ATX of this Agreement, or the consummation by ATX of the
transactions contemplated hereby, and shall be in full force and effect, and
copies of all such Licenses, Permits, consents, approvals and authorizations
shall have been delivered to CoreComm, except to the extent that such lack of
approval or delivery would not have a Material Adverse Effect on ATX following
consummation of the transactions contemplated hereby.
6.7 HSR Act. The waiting period (and any extension thereof)
applicable to the consummation of the transactions contemplated hereby under the
HSR Act, if applicable, shall have expired or been terminated.
6.8 No Material Adverse Change. From the date of this Agreement
through the Closing Date, there shall not have occurred any change in the
financial condition, business or operations of ATX that would individually or in
the aggregate, have a Material Adverse Effect.
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6.9 Stockholder Approval. This Agreement and the Domestication
Merger shall have been approved in the manner required under applicable law by
the holders of the issued and outstanding shares of capital stock of CoreComm.
6.10 FCC/State PUC Consents. The FCC and State PUCs shall have
granted by Final Order the FCC/State PUC Consent Applications, without
conditions, qualifications or other restrictions that are likely to have a
Material Adverse Effect whether imposed by the FCC or any other Governmental
Entity.
6.11 Registration Statement. The Registration Statement shall have
become effective under the Securities Act and shall not be subject of any stop
order or proceedings seeking a stop order.
6.12 Transition Services Agreement. ATX and UHC shall have executed
and delivered the Transition Services Agreement, which shall remain in full
force and effect.
6.13 Resignations. All resignations of directors and officers of ATX
which have been previously requested in writing by CoreComm shall have been
delivered to CoreComm.
6.14 The GAAP Financial Statements of ATX. CoreComm shall have
received the GAAP Audited Financials with no qualifications that would prevent
the inclusion of such financial statements in any SEC filing of CoreComm or ATX.
6.15 Stockholders' Agreement. The ATX Stockholders and ATX shall have
executed and delivered to CoreComm the ATX Stockholders' Agreement, which shall
remain in full force and effect.
6.16 NASDAQ Listing. The ATX Common Stock to be issued in the Merger
and the Recapitalization pursuant to this Agreement shall have been authorized
for listing on the NASDAQ National Market, subject to official notice of
issuance.
6.17 Formation of ATX Merger Sub. ATX Merger Sub shall have been
incorporated and capitalized as described in Section 1.1.
6.18 Escrow Agreement. ATX, the ATX Stockholders and the Escrow Agent
shall have executed and delivered the Escrow Agreement, which shall remain in
full force and effect.
6.19 Opinions of Counsel.
(a) Since the date of this Agreement, there shall have been
no change in applicable law or interpretations thereof, or any change in facts
(including the discovery of any facts not known as of the date of this
Agreement) or circumstance, which shall have prevented Paul, Weiss, Rifkind,
Wharton & Garrison, counsel to CoreComm, on the Closing Date, from delivering to
CoreComm a written opinion of such firm to the effect that for federal income
tax purposes the Merger and Recapitalization will constitute an exchange to
which Section 351 of the Code applies or a reorganization within the meaning of
Section 368(a) of the Code, or both.
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(b) CoreComm shall have received an opinion, dated the
Closing Date, from ATX's telecommunications regulatory counsel, substantially in
the form agreed to by the parties.
(c) CoreComm shall have received an opinion, dated the
Closing Date, from Klehr, Harrison, Harvey, Branzburg and Ellers LLP,
substantially in the form agreed to by the parties.
6.20 Corporate Governance. ATX shall have taken all actions necessary
so that not later than the Closing Date, the composition of the Board of
Directors and each committee of the Board of Directors and each officer of ATX
shall be the same as those for CoreComm immediately prior to the Effective Date.
6.21 Necessary Consents. ATX shall have obtained all material
consents and approvals, including, but not limited to, any waivers, consents or
approval, in connection with the agreements (including any amendments thereto)
set forth on Exhibit H hereto, and each shall be in full force and effect.
6.22 Existing Stockholders' Agreement. The Existing Stockholders'
Agreement shall have been terminated and ATX shall have no further or continuing
obligations thereunder.
6.23 Employment Matters. ATX shall have entered into Key Employee
Employment Agreements in form and substance reasonably acceptable to CoreComm
with at least 5 Identified Employees so long as CoreComm has complied with its
obligation to offer employment to the Identified Employees as set forth on
Exhibit I. In addition, at least 50% of the persons receiving consideration in
satisfaction of ATX's obligations under the 1998 Phantom Unit Plan, plus all
Identified Employees shall have entered into agreements relating to Phantom
Unitholders as set forth on Exhibit I.
VII. CONDITIONS TO OBLIGATIONS OF ATX
The obligations of ATX under this Agreement are subject to the
satisfaction or waiver (such waiver being the exclusive right of ATX), at or
before the Closing, of each of the conditions set forth in this Article VII. In
the event that CoreComm undertakes any action contemplated by the definition of
Base Adjustments in Section 1.2(i) prior to the Closing, no condition set forth
in this Article VII shall be deemed not to be satisfied if, but for such action
or the consequences thereof, such condition would otherwise be satisfied.
7.1 Representations and Warranties. Each of the representations and
warranties of CoreComm contained herein, and the statements contained in any
schedule, instrument, list, certificate or writing delivered by CoreComm
pursuant to this Agreement, that is qualified as to materiality or Material
Adverse Effect shall be true and correct as of the date when made and as of the
Closing Date if made at and as of the Closing Date and each of such
representations, warranties and statements that is not so qualified shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as if made at and as of the Closing Date (except, in each case, for
those representations, warranties and statements that address matters only as of
a particular date,
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in which case they shall be true and correct, or true and correct in all
material respects, as applicable, as of such date).
7.2 Performance. CoreComm shall have performed and complied with all
agreements, obligations, covenants and conditions required by this Agreement to
be performed or complied with by CoreComm at or prior to the Closing that are
qualified as to materiality or Material Adverse Effect and shall have performed
and complied in all material respects with all other agreements, obligations,
covenants and conditions required by this Agreement to be performed or complied
with by CoreComm at or prior to the Closing that are not so qualified as to
materiality.
7.3 No Proceeding or Litigation. There shall not be threatened,
instituted or pending any suit, action, investigation, inquiry or other
proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting or looking toward an order,
judgment or decree that restrains or prohibits the consummation of the
transactions contemplated hereby.
7.4 No Injunction. No statute, rule, regulation, executive order,
decree or injunction shall have been enacted, entered, promulgated or enforced
by any court or governmental authority which prohibits the consummation of the
transactions contemplated hereby.
7.5 Officer's Certificate. CoreComm shall have delivered to ATX a
certificate, dated the Closing Date, executed by the Chief Executive Officer of
CoreComm, certifying to the fulfillment of the conditions specified in Sections
7.1, 7.2 and 7.3.
7.6 Consents and Approvals. All Licenses, Permits, consents,
approvals and authorizations of all third parties and Governmental Entities
shall have been obtained that are necessary in connection with the execution and
delivery by CoreComm of this Agreement, or the consummation by CoreComm of the
transactions contemplated hereby and shall be in full force and effect and
copies of all such Licenses, Permits, consents, approvals and authorizations
shall have been delivered to ATX, except to the extent such lack of approval or
delivery would not have a Material Adverse Effect on ATX following consummation
of the transactions contemplated hereby.
7.7 HSR Act. The waiting period (and any extension thereof)
applicable to the consummation of the transactions contemplated hereby under the
HSR Act, if applicable, shall have expired or been terminated.
7.8 Registration Rights Agreement. ATX, CoreComm and each of the ATX
Stockholders shall have entered into a Registration Rights Agreement in the form
attached hereto as Exhibit G.
7.9 FCC/State PUC Consents. The FCC shall have granted by Final
Order and the State PUCs shall have granted the FCC/State PUC Consent
Applications, without conditions, qualifications or other restrictions that are
likely to have a Material Adverse Effect, whether imposed by the FCC or any
other Governmental Entity.
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7.10 No Material Adverse Change. From the date of this Agreement
through the Closing Date, there shall not have occurred any change in the
financial condition, business or operations of CoreComm that would have a
Material Adverse Effect.
7.11 Registration Statement. The Registration Statement shall have
become effective under the Securities Act and shall not be subject of any stop
order or proceedings seeking a stop order.
7.12 Tax Opinion. Since the date of this Agreement, there shall have
been no change in law or interpretations thereof, or changes in facts (including
the discovery of facts not known as of the date of this Agreement) or
circumstances, which shall have prevented Klehr, Harrison, Harvey, Branzburg &
Ellers LLP, counsel to ATX, on the Closing Date, from delivering to ATX a
written opinion of such firm to the effect that for federal income tax purposes
the Merger and Recapitalization will constitute an exchange to which Section 351
of the Code applies or a reorganization within the meaning of Section 368(a) of
the Code, or both.
7.13 Letters of Credit. Effective on the Closing Date, arrangements
shall have been made to replace or effectively relieve Karp or his Affiliates
(other than ATX or one of its subsidiaries) of liability under any letter of
credit issued on behalf of ATX which has been guaranteed or secured by Karp or
one of his Affiliates (other than ATX or one of its subsidiaries).
VIII. TERMINATION OF AGREEMENT
8.1 Termination of Agreement. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual agreement of ATX and CoreComm;
(b) by CoreComm, on or after the later of (x) October 31,
2000, or (y) 120 days following the date on which CoreComm last made an initial
announcement that it had entered into a definitive agreement for a CoreComm
Transaction, if any of the conditions provided in Article 6 of this Agreement
have not been satisfied and have not been waived in writing by CoreComm prior to
such date; provided that, in the case of a failure to satisfy the conditions set
forth in Section 6.3 as a result of a suit, action, investigation, inquiry or
other proceeding or Section 6.4 as a result of an order, decree or injunction,
CoreComm shall have used its reasonable best efforts to remove such suit,
action, investigation, inquiry or other proceeding in the case of Section 6.3 or
such order decree or injunction in the case of Section 6.4;
(c) by ATX on or after October 31, 2000, if any of the
conditions provided in Article 7 of this Agreement have not been satisfied and
have not been waived in writing by ATX prior to such date; provided that, in the
case of a failure to satisfy the conditions set forth in Section 7.3 as a result
of a suit, action, investigation, inquiry or other proceeding or Section 7.4 as
a result of an order, decree or injunction, ATX shall have used its reasonable
best efforts to remove such suit, action, investigation, inquiry or other
proceeding in the case of Section 7.3 or such order, decree or injunction in the
case of Section 7.4;
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(d) by CoreComm if ATX breaches in a material respect any of
its representations, warranties or covenants contained in this Agreement and
such breach would give rise to the condition under Section 6.1 or 6.2 not being
satisfied and which breach cannot be or is not cured by the Closing Date; or
(e) by ATX if CoreComm breaches in a material respect any of
it representations, warranties or covenants contained in this Agreement and such
breach would give rise to the condition under Section 7.1 or 7.2 not being
satisfied and which breach cannot be or is not cured by the Closing Date.
8.2 Procedure Upon Termination.
(a) In the event of termination pursuant to Section 8.1,
written notice thereof shall immediately be given by the terminating party to
the other party and the transaction contemplated by this Agreement shall be
terminated, without further action or obligation on the part of either party
except as set forth in this Section 8.2, , except that any such termination
shall be without prejudice to the rights of any party on account of
nonsatisfaction of the conditions set forth in Articles 6 or 7 resulting from
the intentional or willful breach or violation of the representations,
warranties, covenants or agreements of another party under this Agreement.
(b) ATX, on the one hand, and CoreComm on the other hand,
shall return all documents, work papers and other material of the other parties
relating to the transaction contemplated hereby, whether obtained before or
after the execution hereof, to the party furnishing such items;
(c) all confidential information received by ATX or CoreComm
with respect to the business of the other parties or their Affiliates shall be
treated in accordance with Section 5.4.
IX. INDEMNIFICATION
9.1 Indemnification by ATX Stockholders. Subject to the limitations
set forth in this Article 9, and as an inducement to prompt CoreComm to enter
into this Agreement (without which such inducement CoreComm would not have
entered into this Agreement), each of the ATX Stockholders hereby agree, jointly
and severally, to indemnify and hold harmless ATX from and after the Closing
against and with respect to any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries, and deficiencies,
including interest, penalties, and reasonable fees and expenses of attorneys,
experts, personnel and consultants incurred by the Indemnified Party (as defined
herein) (including in any action or proceeding between the Indemnifying Party
(as defined herein) and the Indemnified Party or between the Indemnified Party
and any third party or otherwise) (together referred to as "ATX Losses")
resulting from (i) any breach of a representation, warranty, covenant, or
agreement made by ATX, ATX Merger Sub, or any of the ATX Stockholders, in this
Agreement, the ATX Disclosure Schedules or any other certificate or document
delivered by ATX, ATX Merger Sub or any of the ATX Stockholders to CoreComm
pursuant to this Agreement each of which representation, warranty, covenant or
agreement shall be considered without regard to any materiality or Material
Adverse Effect qualification therein for purposes of determining whether a
breach has occurred, and any and all
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demands, claims, actions, suits or proceedings, assessments, judgments, costs
and legal and other expenses incident to the foregoing, and (ii) the failure of
ATX to have either applied for or obtained any necessary regulatory
authorization or approval from any state public utilities commission or
comparable entity (regardless of whether or not such failure is disclosed in the
ATX Disclosure Schedule) in any state in which ATX had in excess of $25,000 of
revenues from intra-state operations in calendar year 1999.
9.2 Procedures for Indemnification.
(a) Promptly after receipt by a party (the "Indemnified
Party") of notice of the commencement of any action by a person not a party to
this Agreement involving the subject matter of the foregoing indemnity
provisions other than with respect to Taxes (a "Third Party Suit"), such
Indemnified Party shall, if a claim thereof is to be made against another party
hereto (the "Indemnifying Party") pursuant to the provisions of Section 9.1,
promptly notify such Indemnifying Party of the commencement thereof; but the
omission to so notify such Indemnifying Party will not relieve it from any
liability which it may have to the Indemnified Party to the extent the
Indemnifying Party was not prejudiced by such omission.
(b) The Indemnifying Party shall have ten (10) days from
receipt of such notice to notify the Indemnified Party whether or not it
disputes its liability to the Indemnified Party with respect to such Third Party
Suit and whether or not it desires, at its sole cost and expense, to defend such
Third Party Suit. If the Indemnifying Party shall so notify the Indemnified
Party that it desires to defend against such Third Party Suit, the Indemnifying
Party shall have the right to defend against such Third Party Suit (unless (i)
the Indemnifying Party is also a party to such Proceeding and the Indemnified
Party determines in good faith that joint representation would be inappropriate,
or (ii) the Indemnifying Party fails to provide reasonable assurance to the
Indemnified Party of its financial capacity to defend such Proceeding and
provide indemnification with respect to such Proceeding), with counsel
reasonably satisfactory to such Indemnified Party, by appropriate proceedings
which shall be promptly settled or prosecuted by the Indemnifying Party, so long
as it diligently conducts such defenses, to a final conclusion such that a (i)
it will be conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected
by the Indemnifying Party without the Indemnified Party's consent unless (A)
there is no finding or admission of any violation of Laws or any violation of
the rights of any Person and no effect on any other claims that may be made
against the Indemnified Party, and (B) the sole relief provided is monetary
damages that are paid in full by the Indemnifying Party; and (iii) the
Indemnified Party will have no liability with respect to any compromise or
settlement of such claims effected without its consent and the Indemnified Party
shall receive a full release. The Indemnified Party may elect to participate in
any such contest at its own cost and expense; provided, however, that the
control of such contest shall rest primarily with the Indemnifying Party.
(c) Notwithstanding the foregoing (i) if the defendants in
any action include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to it which are different from or additional to those
available to the Indemnifying Party, or if there is a conflict of interest which
would prevent counsel for the Indemnifying Party from also representing the
Indemnified Party, the Indemnified
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Party shall have the right to select separate counsel to participate in the
defense of such Third Party Suit on behalf of such Indemnified Party, at the
cost of the Indemnified Party; and (ii) in the event that such Third Party Suit
involves potentially criminal or fraudulent activity of an Indemnifying Party,
the Indemnified Party shall have the right, at its sole option, to defend such
Third Party Suit at the expense of the Indemnifying Party.
(d) If the Indemnifying Party shall fail to elect to defend
against such Third Party Suit, then the amount of any such Third Party Suit,
including all losses, judgments, expenses and costs incurred by the Indemnified
Party in connection with any defense thereof shall be deemed to be a liability
of the Indemnifying Party hereunder.
(e) After notice from the Indemnifying Party to such
Indemnified Party of its election to assume the defense thereof, the
Indemnifying Party shall not be liable to the Indemnified Party pursuant to the
provisions of Sections 9.1 for any legal or other expense subsequently incurred
by such Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the Indemnified Party shall have
employed counsel in accordance with Subsection (c) above, (ii) the Indemnifying
Party shall not have employed counsel reasonably satisfactory to the Indemnified
Party to represent the Indemnified Party within a reasonable time after the
notice of the commencement of the action, or (iii) the Indemnifying Party has
authorized the employment of counsel for the Indemnified Party at the expense of
the Indemnifying Party.
(f) In the event the Indemnified Party shall have any claim
against the Indemnifying Party hereunder which does not involve a claim or
demand by or against a third party, the Indemnified Party shall promptly notify
the Indemnifying Party of such claim, providing reasonable details of the facts
giving rise to the claim and a statement of the Indemnified Party's Loss in
connection with the claim, to the extent such Loss is then known to the
Indemnified Party and, otherwise, an estimate of the amount of the Loss that it
reasonably anticipates that it will incur or suffer; however, failure by the
Indemnifying Party to give notice shall not prejudice any rights contained
herein.
9.3 Cooperation in Defense. In case of any claim, arbitration or
legal proceeding, the defense of which is assumed by an Indemnifying Party in
accordance with this Article 9, the Indemnified Party, upon request of the
Indemnifying Party, shall provide reasonable cooperation (at the expense of the
Indemnifying Party in accordance with this Article 9) in the defense thereof.
9.4 Limitations on Indemnification by ATX Stockholders.
Notwithstanding Section 9.1 or any other provision of this Agreement or
applicable law, the ATX Stockholders' aggregate liability for ATX Losses
indemnified pursuant to Section 9.1 is subject to the following limitations:
(a) The ATX Stockholders shall have no liability for any ATX
Loss unless notice of a claim for such ATX Loss, specifying in reasonable detail
the basis for such claim, is made upon ATX Stockholders prior to the expiration
of the survival periods set forth in Section 10.1. The ATX Stockholders' maximum
aggregate liability for ATX Losses shall be $250,000,000; plus the aggregate
amount of any costs, charges and expenses (including without limitation legal
expenses) incurred by ATX and CoreComm in bringing or enforcing any claims
against the ATX Stockholders under this Agreement.
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(b) The ATX Stockholders shall be liable for ATX Losses
(other than ATX Losses due to or arising out of any inaccuracy in or any breach
of a representation, warranty, covenant or agreement of ATX, ATX Merger Sub or
the ATX Stockholders contained in Sections 3.1, 3.2, 3.3 and 3.20) (the "Basket
Exclusions"), only if and to the extent that the aggregate ATX Losses exceed
$10,000,000; provided, however, that the ATX Stockholders shall be liable only
for amounts in excess of $5,000,000 (including the Basket Exclusions); provided
further that the ATX Stockholders shall be liable for all ATX Losses related to
the Basket Exclusions.
9.5 Mitigation of Losses.
(a) ATX Losses shall be subject to appropriate mitigation
for (i) any actual recovery from third parties (less attorneys' fees, expenses
and other costs of recovery), (ii) the actual collection of insurance proceeds
(less attorneys' fees, expenses and other costs of recovery, net of any
adjustments to the corresponding insurance premiums).
(b) Where an Indemnified Party is entitled (whether by right
of indemnity, reimbursement or any other means) to recover from any Person (not
being any employee or officer of an Indemnified Party, but including its or
their insurers) any sum with respect to any matter giving rise to a claim, then
(subject first to being indemnified and secured to the reasonable satisfaction
of an Indemnified Party against all costs, expenses, tax or other liabilities
which may be thereby incurred) the Indemnified Party shall take all reasonable
steps to enforce such recovery (keeping the Indemnifying Party fully informed of
the progress of any action taken) and account to the Indemnifying Party for any
net amounts that are recovered (not exceeding the amount previously paid by the
Indemnifying Party and after first taking account of any liability or loss of
the Indemnified Party with respect to which the Indemnifying Party is not
liable).
9.6 Exclusivity. Following the Closing, the remedies (subject to the
limitations) set forth in this Article 9 shall be the sole remedy for claims for
liability for ATX Losses arising under this Agreement.
9.7 Indemnification Escrow. Upon the Recapitalization, 27% of the
shares of ATX Common Stock comprising the Exchange Consideration shall be
deposited in escrow (the "Indemnification Escrow") pursuant to an escrow
agreement among ATX, each ATX Stockholder and an escrow agent selected by such
parties with the consent of CoreComm (the "Indemnification Escrow Agreement").
Such shares (together with any distributions thereon or the proceeds from the
sales thereof) shall be held in the Indemnification Escrow subject to the terms
of the Indemnification Escrow Agreement to secure the indemnification
obligations of the ATX Stockholders under Section 9.1 hereof, and such assets
shall be held and disbursed in accordance with the terms of the Indemnification
Escrow Agreement. In the event of any claim by ATX against such assets, the
shares of ATX Common Stock shall be valued at the closing price on the business
day immediately preceding the date on which such shares are to be disbursed to
an Indemnified Party in accordance with the terms of the Indemnification Escrow
Agreement.
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X. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.1 ATX, ATX Merger Sub and ATX Stockholders. Notwithstanding the
right of CoreComm to investigate fully the affairs of ATX, ATX Merger Sub and
the ATX Stockholders and notwithstanding any knowledge of facts determined or
determinable by CoreComm pursuant to such investigation or right of
investigation, CoreComm shall have the right to rely fully upon the
representations, warranties, covenants and agreements of ATX, ATX Merger Sub and
the ATX Stockholders contained in this Agreement or in any document or
certificate delivered pursuant to this Agreement. All such representations,
warranties, covenants and agreements shall survive the execution and delivery of
this Agreement and the Closing hereunder. Except for those representations and
warranties set forth in Section 3.3 hereof (all of which representations and
warranties shall survive without limitation as to time), all representations and
warranties of ATX and ATX Merger Sub contained in this Agreement shall expire
(i) April 30, 2001, and (ii) with respect to any claim related to taxes or
environmental representations and warranties, on the date upon which the
liability to which any such claim may relate is barred by all applicable statues
of limitations.
10.2 CoreComm. None of the representations, warranties, covenants and
agreements of CoreComm contained in this Agreement or in any document or
certificate delivered pursuant to this Agreement shall survive the Closing
hereunder other than those covenants that by their terms are to be performed
after the Closing.
XI. MISCELLANEOUS
11.1 Expenses. Except as otherwise provided herein, each party hereto
shall pay all fees and expenses incurred by it in connection with this
Agreement.
11.2 Further Assurances. Following the Closing, at the request of any
party, the other party or parties shall deliver any further instruments of
transfer and take all commercially reasonable actions as may be necessary or
appropriate to effectuate any of the other transactions contemplated by this
Agreement.
11.3 Parties in Interest. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the respective successors and permitted
assigns of the parties hereto. The rights and obligations of CoreComm and ATX
hereunder may not be assigned, in whole or in part, without the prior written
consent of the other, which shall not be unreasonably withheld and any attempt
to make any such assignment without such consent shall be null and void.
11.4 Entire Agreement, Amendments and Waiver.
(a) This Agreement, the exhibits, the schedules and other
writings referred to herein or delivered pursuant hereto that form a part hereof
contain the entire understanding, both written and oral, of the parties with
respect to its subject matter. This Agreement supersedes all prior agreements
and understandings between the parties with respect to its subject matter.
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(b) This Agreement may be amended only by a written
instrument duly executed by each of the parties hereto. Any condition to a
party's obligations hereunder may be waived in writing by such party to the
extent permitted by law.
11.5 Interpretation. When a reference is made in this Agreement to
Articles, Sections, Exhibits or Schedules, such reference shall be to an Article
or Section of or Exhibit or Schedule to this Agreement unless otherwise
indicated. The table of contents, glossary of defined terms 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. The term "or" is not exclusive.
11.6 Notices. All notices, claims, certificates, requests, demands
and other communications hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally, by facsimile transmission or
mailed (registered or certified mail, postage prepaid, return receipt requested
or recognized overnight carrier) as follows:
If to CoreComm to: CoreComm Limited
110 East 59th Street
New York, NY 10022
Attention: Jared L. Gurfein, Esq.
Facsimile No.: (212) 906-8489
with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: Kenneth M. Schneider, Esq.
Facsimile No.: (212) 373-2825
If to ATX: ATX Telecommunications Services, Inc.
50 Monument Road
Bala Cynwyd, PA 19004
Attention: Thomas Gravina
Facsimile No.: (610) 668-6336
with a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 South Broad Street
Philadelphia, PA 19102
Attention: Michael C. Forman, Esq.
Facsimile No.: (215) 568-6603
or to such other address as the Person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above,
provided that notice of a change of address shall be deemed given only upon
receipt.
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11.7 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware
without regard to its or any other jurisdiction's conflicts of law rules.
11.8 Submission to Jurisdiction; Waivers. Each of CoreComm and ATX
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by any other party hereto or its successors or assigns may be brought
and determined in the Chancery Court of the State of Delaware or any federal
District Court in the State of Delaware, and irrevocably submits with regard to
any such action or proceeding for itself and in respect to its property,
generally and unconditionally, to the exclusive jurisdiction of such courts, and
agrees that service of process in any such action or proceeding shall be
effective if mailed to such party at the address specified in Section 11.6. Each
of CoreComm and ATX hereby irrevocably waives, and agrees not to assert, by way
of motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement, (a) any claim that it is not personally subject
to the jurisdiction of such courts for any reason other than the failure to
lawfully serve process, (b) that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
and (c) to the fullest extent permitted by applicable law, that (i) the suit,
action or proceeding in any such court is brought in an inconvenient forum, (ii)
the venue of such suit, action or proceeding is improper, (iii) this Agreement,
or the subject matter hereof, may not be enforced in or by such court and (iv)
any right to a trial by jury.
11.9 Third Parties. Nothing herein expressed or implied is intended
or shall be construed to confer upon or give to any person, other than the
parties hereto and their successors or permitted assigns, any rights or remedies
under or by reason of this Agreement.
11.10 Severability. If it is determined that any term or provision of
this Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transaction contemplated hereby is not affected in any manner
materially adverse to any party. To such end, the provisions of this Agreement
are agreed to be severable. 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 in an acceptable manner in
order that the transaction contemplated hereby is consummated as originally
contemplated to the greatest extent possible.
11.11 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be deemed to be an original and 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 (including by facsimile
transmission) to the other parties hereto, it being understood that all parties
need not sign the same counterpart.
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XII. DEFINED TERMS
12.1 Location of Certain Defined Terms. The following terms used in
this Agreement are defined in the Section indicated:
Term Section
Accountant 1.2
Accountant's Report 1.2
Adjustment Event 1.3
Agreement forepart
Applicable Amount 1.2
ATX forepart
ATX Balance Sheet 3.5
ATX Balance Sheet Date 1.2
ATX Bylaws 3.1
ATX Capital Expenditure Obligation 1.2
ATX Certificate of Incorporation 3.1
ATX Common Stock 1.2
ATX Debt 1.2
ATX Disclosure Schedule Article III
ATX Financial Statements 3.5
ATX Losses 9.1
ATX Merger Article III
ATX Merger Sub 1.1
ATX Merger Sub Common Stock 1.3
ATX Partnership Agreements 3.1
ATX Partnerships Article III
ATX Stockholders forepart
Authority 3.11
Base Adjustments 1.2
Base Stock Price 1.2
Basket Exclusions 9.4
Buruchian forepart
Capital Expenditure Adjustment 1.2
Capital Expenditures 1.2
Cash Consideration 1.2
Certificate of Merger 1.1
Certificate 1.4
Closing 2.1
Closing Date 2.1
Closing Exchange Consideration 1.2
Closing Financial Statements Delivery Date 1.2
Closing Stock Price 1.2
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Collar Stock Price 1.2
Code forepart
Communications Act 3.12
Communications Permits 3.10
Constituent Corporations 1.1
Contract 3.4
Controlled Group 3.17
Convertible Preferred Stock 1.2
CoreComm forepart
CoreComm Balance Sheet 4.5
CoreComm Balance Sheet Date 4.5
CoreComm Bylaws 4.1
CoreComm Common Stock 1.3
CoreComm Disclosure Schedule Article IV
CoreComm Memorandum of Association 4.1
CoreComm Merger Sub 1.1
CoreComm Merger Sub Common Stock 1.1
CoreComm SEC Reports 4.5
CoreComm Stock Plans 4.3
CoreComm Stockholders' Meeting 5.6
CoreComm Transaction 1.2
Current Market Price 1.2
Dispute Notice 1.2
DGCL 1.1
Domestication Merger 1.1
DOJ 5.7
Effective Time 1.1
Environmental Laws 3.19
ERISA 3.19
Escrow 1.2
Escrow Agreement 1.2
Estimated Closing ATX Debt 1.2
Estimated Closing Capital Expenditures 1.2
Estimated Closing Working Capital 1.2
Exchange Agent 1.4
Exchange Act 4.5
Exchange Consideration 1.2
Exchange Fund 1.4
FCC 5.7
FCC Consent Application 5.7
FCC Permits 3.10
FCC/State PUC Applications 5.16
Final ATX Debt 1.2
Final Capital Expenditure Adjustment 1.2
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Final Shortfall 1.2
Final Working Capital Excess 1.2
Final Working Capital Shortfall 1.2
Financial Closing Financial Statements 1.2
FTC 5.7
GAAP 1.2
GAAP Audited Financials 5.11
GAAP Balance Sheet 5.11
GAAP Balance Sheet Date 5.11
GAAP Interim Financials 5.11
Gravina forepart
HSR Act 3.12
Identified Employees 5.30
Indemnification Escrow 9.7
Indemnification Escrow Agreement 9.7
Indemnified Party 9.3
Indemnifying Party 9.3
Intellectual Property 3.16
Karp forepart
Karp Trust forepart
Key Employee Employment Agreements 5.30
Law 3.4
Laws 3.10
Legal Actions 3.8
Liabilities 3.6
Licenses 3.10
Liens 3.4
Losses 9.1
Material Decision 5.7
Merger 1.1
Merger Ratio 1.3
Monthly Period 1.2
Municipal Permits 3.10
Permits 3.10
Phantom Unit Plan 5.14
Pre-Closing Capital Expenditure Adjustment 1.2
Pre-Closing Financial Statements 1.2
Pre-Closing Working Capital Adjustment 1.2
Pro Formas 1.2
Proposed Closing Financial Statements 1.2
Proxy Statement 3.22
PUC 3.12
Recapitalization 1.2
Registration Statement 3.22
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Regulatory Law 5.8
Representatives 5.14
Representation Termination Date 9.3
Review Period 1.2
Rights Holders 7.8
Scheduled Intellectual Property 3.16
Securities Act 4.5
Senior Management Employment Agreements 5.31
Settlement Period 1.2
Stockholders 9.1
Stockholders' Representative 1.2
State Permits 3.10
State PUCs 3.10
Stockholders' Meetings 3.22
Subsidiary 1.3
Surviving Corporation 1.1
Third Party Suit 9.2
Taxes 3.11
Trigger Day 1.2
Unaudited 1999 Financials 3.5
Utilities Laws 3.12
Working Capital 1.2
Working Capital Shortfall 1.2
12.2 Other Defined Terms. As used in this Agreement, the following
terms have the meanings indicated:
"Affiliate" of a specified Person means a Person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the Person specified.
"Benefit Plans" means, with respect to any Person, each employee
benefit plan, program, arrangement and contract (including, without limitation,
any "employee benefit plan," as defined in Section 3(3) of ERISA and any bonus,
incentive, deferred compensation, stock bonus, stock purchase, restricted stock,
stock option, employment, retention, termination, stay agreement or bonus,
change in control and severance plan, program, arrangement and contract) and on
the date of this Agreement, which is maintained or contributed to by such Person
or under which, on the date of this Agreement, such Person may have an actual or
contingent liability (excluding any plans or programs required to be maintained
or contributed to under the local law of the jurisdiction in which such person
is employed).
"Final Order" means an order, action or decision of a
Governmental Entity that has not been reversed, stayed, or enjoined and as to
which the time to appeal, petition for certiorari or seek reargument or
rehearing or administrative reconsideration or review has expired and as to
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which no appeal, reargument, petition for certiorari or rehearing or petition
for reconsideration or application for review is pending or as to which any
right to appeal, reargue, petition for certiorari or rehearing for
reconsideration or review has been waived in writing by each party having such a
right or, if any appeal, reargument, petition for certiorari or rehearing or
reconsideration or review thereof has been sought, the order or judgment of the
court or agency has been affirmed by the highest court (or the administrative
entity or body) to which the order was appealed or from which the argument or
rehearing or reconsideration or review was sought, or certiorari has been
denied, and the time to take any further appeal or to seek certiorari or further
reargument or rehearing, or reconsideration or review, has expired.
"Governmental Entity" means any government, court,
administrative agency or commission or other governmental authority or
instrumentality, domestic, foreign or supranational, or any quasi-governmental
or private body exercising any regulatory, taxing, importing or other
governmental or quasi-governmental authority.
"Knowledge" means the actual knowledge or notice of Gravina,
Buruchian, Karp or the Karp Trust or any officer or director of ATX, after due
inquiry.
"Material Adverse Effect" means, with respect to any entity, a
material adverse effect on its business, assets, operations or financial
condition, taken as a whole, other than any such effect arising out of or
resulting from general economic or financial conditions or changes in or
affecting the communications industry.
"Person" means an individual, corporation, limited liability
corporation, limited liability partnership, partnership, association, trust,
unincorporated organization, other entity or group (as defined in the Securities
Exchange Act of 1934, as amended).
XIII. ATX STOCKHOLDER COVENANTS
13.1 No Transfers. Each ATX Stockholder agrees that prior to the
Closing such ATX Stockholder will not, and will not contract to, sell or
otherwise pledge, encumber, transfer or dispose of such ATX Stockholder's
pre-Recapitalization shares of ATX shares or any interest therein other than (i)
pursuant to the Recapitalization or (ii) with CoreComm's prior written consent.
13.2 Cooperation; No Solicitation. Each ATX Stockholder hereby agrees
to cooperate reasonably with CoreComm and ATX in connection with the
consummation of the transactions contemplated thereby. Each ATX Stockholder
agrees that it will not, and will not cause or permit any of its affiliates, or
any of their respective officers, employees, representatives and agents,
directly or indirectly, to solicit, initiate or encourage any inquiries or the
making of any proposal with respect to an acquisition of ATX or its businesses
or assets, or such ATX Stockholder's pre-Recapitalization shares or provide
information to or negotiate, explore, otherwise engage in discussions with or in
any other way cooperate with any Person (other than CoreComm or its subsidiaries
or their respective directors, officers, employees, agents and representatives)
with respect to any such transaction or enter into any agreement, arrangement or
understanding requiring or causing ATX to abandon, terminate or fail to
consummate the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of CoreComm and ATX, Thomas Gravina, Debra
Buruchian, Michael Karp and The Florence Karp Trust on the date first written
above.
CORECOMM LIMITED
By: /s/ Richard J. Lubasch
----------------------
Name: Richard J. Lubasch
Title: Senior Vice President-General
Counsel
ATX TELECOMMUNICATIONS
SERVICES, INC.
By: /s/ Michael Karp
----------------
Name: Michael Karp
Title:
SOLELY WITH RESPECT
TO ARTICLES 9, 11, 12 and 13 HEREOF
Thomas Gravina
/s/ Thomas Gravina
- ------------------
Debra Buruchian
/s/ Debra Buruchian
- -------------------
Michael Karp
/s/ Michael Karp
- ----------------
THE FLORENCE KARP TRUST
By: /s/ Lisa G. Kaminsky
--------------------
Name: Lisa G. Kaminsky
Title: Trustee
<PAGE> 67
EXHIBIT C
FORM OF STOCKHOLDER AGREEMENT
AGREEMENT dated as of ________ ___, 2000 among ATX Telecommunications
Services, Inc., a Delaware corporation (the "Company") and each of the Persons
listed on Schedule A hereto (each, a "Stockholder").
WHEREAS, pursuant to a Recapitalization Agreement and Plan of Merger,
dated as of March ___, 2000 (the "Merger Agreement"), by and among CoreComm
Limited ("CoreComm"), the Company and the Stockholders (with respect only to
certain provisions thereof) ATX Merger Sub, a wholly-owned subsidiary of the
Company ("Merger Sub") is being merged with and into a wholly-owned subsidiary
of, and successor by merger to CoreComm (the "Merger"), and as a result thereof
(i) each share of the Company's common stock, par value $.01 per share (the
Pre-Recapitalization Common Stock") issued and outstanding immediately prior to
the effective time of the Merger (the "Effective Time") is being converted into
___ shares the Company's Common Stock, par value $.01 per share (the "Common
Stock"), ___ shares of the Company's 3% Convertible Preferred Stock, par value
$.01 per share (the "Preferred Stock"), as well as the right to receive cash or
notes and (ii) each share of CoreComm Common Stock issued and outstanding
immediately prior to the Effective Time, other than treasury shares, is being
converted into one share of the Common Stock; and
WHEREAS, it is a condition to the obligation of CoreComm to consummate
the Merger, that the Company and each of the holders immediately prior to the
Effective Time of the issued and outstanding shares of Pre-Recapitalization
Common Stock enter into this Agreement; and
WHEREAS, the Stockholders are the holders of all of the shares of
Pre-Recapitalization Common Stock issued and outstanding immediately prior to
the Effective Time; and
WHEREAS, each Stockholder has independently determined that the Merger
is in its best interest and each Stockholder wishes to facilitate the
consummation of the Merger by entering into this Agreement and agreeing to be
bound by the terms hereof;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants herein contained, each Stockholder and the
Company hereby agree as follows:
<PAGE> 68
SECTION 1. COVENANTS OF STOCKHOLDERS WITH RESPECT TO VOTING SECURITIES
OF THE COMPANY.
During the term of this Agreement and subject to all of the provisions
hereof, each Stockholder and the Company agree as follows:
1.1 Acquisition of Voting Securities. Each Stockholder shall not
acquire, agree to acquire or offer or propose to acquire, directly or
indirectly, or in conjunction with or through any Person, record or beneficial
ownership of any Voting Securities (as hereinafter defined), except (i) through
the exercise of conversion rights, if any, of Voting Securities (including any
conversion of the Preferred Stock); (ii) by way of stock splits,
reclassifications or stock dividends or other distributions or offerings made on
a pro rata basis to holders of Voting Securities or any class of Voting
Securities; (iii) from another Stockholder by bequest (including, without
limitation, through the creation of a trust), gift, will, pledge, hypothecation
or otherwise in accordance with clause (i) of Section 1.6 hereof; (iv) pursuant
to a bequest or similar gift or transfer from a Person who is not a Stockholder,
including, without limitation, through the creation of a trust for the benefit
of a Stockholder; (v) pursuant to a will or the laws of descent and distribution
from a Person who is not a Stockholder; or (vi) pursuant to the grant or
exercise of stock options or the receipt of other compensation or benefits
involving Voting Securities granted to a Stockholder in such Stockholder's
capacity (if applicable) as an employee or consultant of the Company or any
subsidiary of the Company; provided, however, that if, in connection with the
transfer of Voting Securities to a Stockholder pursuant to clauses (iv) and (v)
of this Section 1.1, a trust, corporation or other entity is formed for the
purpose of holding Voting Securities for the benefit of a Stockholder (other
than solely as an income beneficiary of a trust), then, as a condition precedent
to the receipt by such Stockholder of any direct or indirect beneficial interest
in such Voting Securities, such trust, corporation or other entity shall agree
to be bound by the terms and conditions of a stockholder agreement having the
same or substantially the same terms and conditions as this Agreement.
If a Stockholder shall acquire, directly or indirectly, record or
beneficial ownership of, or the right to acquire, any Voting Securities in
contravention of this Agreement, then such Stockholder shall promptly notify the
Company, and the Company, in its sole discretion, may either (x) purchase (or
cause its designee(s) to purchase) any or all of such acquired Voting Securities
at a price equal to the price paid by such Stockholder or (y) require such
Stockholder to dispose of, within 30 days from the date on which the Company
requests such Stockholder to do so, only in accordance with the provisions of
Section 1.6 (ii) or (iv), the Voting Securities acquired in violation of this
Section 1.1, provided that any sale may be delayed by the
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<PAGE> 69
Stockholders to avoid a violation of Section 16(b) of the Exchange Act or any
other provisions of the Exchange Act or Securities Act, including, without
limitation, any applicable volume limits under Rule 144 of the Securities Act,
or any successor rules or regulations permitting sales of unregistered or
otherwise restricted securities. Each Stockholder hereby acknowledges that any
acquisition of Voting Securities in contravention of this Agreement shall
constitute a breach of this Agreement and that the Company's right to purchase
or require the disposition of Voting Securities pursuant to this Section 1.1
shall not be exclusive and shall be in addition to any other rights and remedies
the Company may have in connection with a breach of this Agreement.
For the purposes of this Agreement, "Voting Securities" means all
securities of the Company, or any successor to the Company, entitling the holder
thereof to vote as a stockholder for any purpose or under any circumstance or
any securities convertible into or exchangeable for under any circumstance such
securities or any rights, warrants or options to acquire (through purchase,
exchange, conversion or otherwise) any such securities under any circumstance.
1.2 Voting of Voting Securities. Each Stockholder shall vote or direct
the vote of all Shares of Voting Securities that are (a) acquired pursuant to
the Merger, (b) acquired by a Stockholder pursuant to Section 1.1, (c) held in
trusts, corporations or other entities formed as contemplated by Section 1.6 or
(d) otherwise hereinafter acquired, with respect to which such Stockholder has
the legal capacity to vote or to direct the vote of such Voting Securities, on
each matter submitted to a vote of the stockholders of the Company, (x) in the
same proportion as the votes cast by all holders of Voting Securities other than
the Stockholders and any affiliates and associates of the Company, with respect
to such matter, or, (y) in the event of a proposed change of control transaction
for the Company, in the manner recommended to the stockholders by the Board of
Directors of the Company provided that the Board of Directors, prior to such
recommendation, shall have received an opinion from a nationally recognized
investment banking firm to the effect that the transaction or the consideration
to be received by the unaffiliated holders of the Common Stock is fair from a
financial point of view to such stockholders; provided, further, that in the
absence of such opinion such Voting Securities shall be voted as provided in
clause (x) of this Section 1.2.
Each Stockholder shall take such action as may be required so that all
Voting Securities with respect to which such Stockholder has the legal capacity
to vote or to direct the vote of such Voting Securities as provided for herein
shall be present in person or by proxy at all duly noticed and convened meetings
of holders of
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Voting Securities for the purpose of determining the presence of a quorum at
such meetings.
1.3 No Voting Trusts. No Stockholder shall, directly or indirectly,
deposit any Voting Securities in a voting trust or in any other manner, except
pursuant to this Agreement, subject any Voting Securities to any arrangement or
agreement with respect to the voting thereof.
1.4 No Election Contests. No Stockholder shall, directly or
indirectly, solicit proxies or become a "participant" in a "solicitation" in
opposition to the recommendation of the Company's Board of Directors with
respect to any matter, including, without limitation, any "election contest"
relating to the election of directors of the Company (as such terms are defined
in Regulation 14A under the Exchange Act) or initiate, propose or otherwise
solicit stockholders of the Company for the approval of one or more stockholder
proposals at any time, or induce or attempt to induce any other person to
initiate any stockholder proposal; provided, however, that each Stockholder
shall vote any Voting Securities directly or indirectly beneficially owned by
such Stockholder in any "election contest" in accordance with the provisions of
the first paragraph of Section 1.2 hereof.
1.5 No Syndications. No Stockholder shall, directly or indirectly,
join or encourage the formation of a partnership, limited partnership, syndicate
or other "group," or otherwise act in concert with any other Person (except as
contemplated by Section 1.2 hereof) for the purpose of affecting or influencing
control of the Company or acquiring, holding, disposing of or Voting Securities.
1.6 Disposition of Voting Securities. No Stockholder shall, directly
or indirectly, offer, sell, assign, pledge, encumber or otherwise dispose of or
transfer in any manner any shares of Common Stock prior to __________1/ except
that the Common Stock may be pledged in respect of a margin loan or to a bona
fide third party lending institution provided that the pledgee shall be bound by
the restrictions contained in this sentence. In addition, except as set forth
above no Stockholder shall, directly or indirectly, offer, sell, assign, pledge,
encumber or otherwise dispose of or transfer in any manner any Voting Securities
(or enter into agreements or understandings with respect to the foregoing), if
after such disposition, the Person holding such Voting Securities would own 5%
or more of the Total Voting Power (or Voting Securities which are convertible
into or exercisable for shares which, after giving effect to such exercise or
conversion, would represent 5% or more of the Total
- ------------------
1/ Nine month anniversary of Closing Date.
4
<PAGE> 71
Voting Power). Any offer, sale, assignment, pledge, encumbrance or other
disposition or transfer of Voting Securities not otherwise prohibited by this
Agreement shall only be effected, to the extent otherwise legally permissible,
in the following manners: (i) pursuant to a bona fide public offering of Voting
Securities (which may include a secondary distribution effected through the
facilities of any national securities exchange on which the Voting Securities
are listed); provided, however, that in case of any such proposed public
offering, each Stockholder selling pursuant to such offering (the "Selling
Stockholder") will use his/her/its best efforts (and will instruct the managing
underwriter of any such public offering or broker-dealer to or through which
such public offering is being made to use its best efforts) to achieve a
sufficiently broad public distribution of the securities being offered (in light
of the number of securities being offered), with the intention that no person or
related group of persons should purchase in such public offering Voting
Securities representing 5% or more of the Total Voting Power; (ii) pursuant to
an unsolicited open market sale or sales during any three-month period
involving, in the aggregate, Voting Securities representing not more than 1% of
the Total Voting Power, as defined in Section 5.4, (in accordance with the
requirements as to the manner of sale set forth in Rule 144(f) and (g) of the
Securities Act or any successor rules or regulations permitting sales of
unregistered or otherwise restricted securities, if such sale is subject to Rule
144 or such successor rules or regulations) on any national securities exchange
on which the Voting Securities are listed; (iii) pursuant to a tender offer made
by the Company or any subsidiary of the Company or made by a third person to the
stockholders of the Company as to which the Company's Board of Directors has
recommended to the stockholders of the Company; (iv) pursuant to a
privately-negotiated transaction with a Person who is not a Stockholder;
provided, that in no case shall any such sale, transfer or other disposition
under this clause (iv) be made to such Person if, immediately after such
transaction, such Person (based upon the written representation of such Person,
which as a condition precedent to such sale, transfer or other disposition shall
be delivered to such Stockholder and to the Company prior to the consummation of
such transaction), together with its affiliates and associates would be the
direct or indirect beneficial or record owner of Voting Securities (when added
to the Voting Securities (if any) already beneficially owned by such Person and
its affiliates and associates) representing in excess of 5% of the Total Voting
Power; (v) pursuant to a will or the laws of descent and distribution; provided,
that the estate of a Stockholder shall be bound by the terms and conditions of
this Agreement and if, immediately after any distribution out of such estate,
any distributee, together with such distributee's affiliates and associates
would (other than solely as an income beneficiary of a trust) be the direct or
indirect beneficial or record owner of, or have the right to acquire, Voting
Securities (when added to the Voting Securities (if any) already owned by such
distributee and his/her affiliates and associates representing in excess of 5%
of the Total Voting Power, then such distributee shall, as a condition
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<PAGE> 72
precedent to receiving such shares of Voting Securities, agree to be bound by
the terms and conditions of a stockholder agreement having the same terms and
conditions as this Agreement; (vi) pursuant to a bequest or similar gift or
transfer to any Person who is not a Stockholder or; provided that if,
immediately after delivery of a bequest or similar gift or transfer, including,
but not limited to, through the creation of a trust, the recipient, together
with such recipient's affiliates and associates (including, as the case may be,
the Stockholder making such transfer), would (other than solely as an income
beneficiary of a trust) be the direct or indirect beneficial or record owner of,
or have the right to acquire, Voting Securities (when added to the Voting
Securities (if any) already owned by such recipient and its affiliates and
associates (including, as the case may be, the Stockholder making such
transfer)) representing in excess of 5% of the Total Voting Power, then such
recipient shall, as a condition precedent to receiving such shares of Voting
Securities, agree to be bound by the terms and conditions of a stockholder
agreement having the same terms and conditions as this Agreement; or (vii) as a
result of any pledge or hypothecation to a bona fide financial institution to
secure a bona fide loan, guaranty or other financial accommodation or as a
result of any foreclosure with respect thereto; provided, however, that in
connection with any transfer by a Stockholder of Voting Securities pursuant to
clauses (v) or (vi) of this Section 1.6 to a trust, corporation or other entity
and a Stockholder retains the authority, as trustee or otherwise, to vote,
acquire or dispose of, or to direct the voting, acquisition or disposition of,
Voting Securities to be held by such trust or other entity, then as a condition
precedent to the transfer of such shares of Voting Securities to such trust or
other entity, such Stockholder shall cause such trust or other entity to be
bound by the terms and conditions of a stockholder agreement having the same or
substantially the same terms and conditions as this Agreement.
Notwithstanding anything to the contrary contained herein, a
Stockholder shall not dispose of or otherwise transfer any Voting Securities in
violation of the provisions of Section 5 of the Securities Act.
1.7 No Solicitation. No Stockholder shall propose, solicit or
participate in any fashion, in any transaction relating to an acquisition of, a
business combination or similar transaction with, or a change of control of, the
Company or make or solicit or encourage any Person to make a tender offer for
Voting Securities.
1.8 Legend on Voting Securities. Each Stockholder agrees that each
certificate representing its Voting Securities shall bear the following legend,
which will remain thereon as long as such Voting Securities are subject to the
restrictions contained in this Agreement:
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<PAGE> 73
The shares represented by this certificate are subject to the
provisions of a Stockholder Agreement dated as of ______ ___, 2000, among
the Company and certain Stockholders, and may not be sold or transferred
except in accordance therewith. Copies of said Agreement are on file at the
offices of the Secretary of the Company.
The Company may enter a stop transfer order with the transfer agent (or agents)
and the registrar (or registrars) of the Voting Securities against the transfer
of legended Voting Securities held by a Stockholder except in compliance with
the requirements of this Agreement. The Company agrees to remove promptly any
stop transfer order with respect to, and issue promptly either legended (if the
Voting Securities remain subject to the restrictions of this Agreement) or
unlegended certificates in substitution for, certificates for any such Voting
Securities that are no longer subject to or are to be transferred in compliance
with the restrictions contained in this Agreement. Without limiting the
generality of the foregoing, the Company shall promptly remove any stop transfer
order in effect with respect to such certificates, upon the delivery to the
Company of an opinion of counsel to a Stockholder, in form and substance
reasonably satisfactory to the Company, that legended certificates representing
Voting Securities are no longer subject to this Agreement or that such Voting
Securities are being transferred in compliance with the provisions of Sections
1.6, and shall promptly issue unlegended certificates in substitution for such
legended certificates, except if such legended certificates are being
transferred pursuant to Section 1.6 to a transferee who shall be bound by the
terms and conditions of a Stockholder Agreement, in which event the Company may
issue legended certificates.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
2.1 Representations and Warranties of the Stockholders. Each
Stockholder represents and warrants to the Company as follows:
(i) At the Effective Time, such Stockholder will be the record
and beneficial owner of the Shares of Common Stock and Preferred Stock set forth
beside its name on Schedule A hereto (such Stockholder's "Shares") and will be
the lawful owner of such Shares, free and clear of all liens, charges,
encumbrances, voting agreements and commitments of every kind, other than this
Agreement. Such Stockholder has full legal power, authority and right to vote
all of such Stockholder's Shares in the manner required by this Agreement
without the consent or approval of, or any other action on the part of, any
other person or entity.
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(ii) The execution, delivery and performance by such
Stockholder of this Agreement has been approved by all necessary action on the
part of such Stockholder.
(iii) This Agreement has been duly executed and delivered by
such Stockholder and constitutes the valid and binding agreement of such
Stockholder, enforceable against the Stockholder in accordance with its terms.
(iv) The execution, delivery and performance of this Agreement
by such Stockholder does not violate or breach, and will not give rise to any
violation or breach of, any law, contract, instrument, arrangement or agreement
by which such Stockholder is, or any of such Stockholder's Shares are, bound.
(v) The execution, delivery and performance of this Agreement
by such Stockholder does not create or give rise to any right in any other
Person or entity (other than the Company) with respect to such Stockholder's
Shares or any other Voting Securities.
2.2 Representations and Warranties of the Company. The Company
represents and warrants to each Stockholder as follows:
(i) The execution, delivery and performance by the Company of
this Agreement has been approved by all necessary corporate action on the part
of the Company.
(ii) This Agreement has been duly executed and delivered by a
duly authorized officer of the Company and constitutes a valid and binding
agreement of the Company, enforceable against The Company in accordance with its
terms.
(iii) The execution and delivery of this Agreement by the
Company does not violate or breach, and will not give rise to any violation or
breach of, the charter or bylaws of the Company, or, except as will not
materially impair its ability to effectuate, carry out or comply with all of the
terms of this Agreement, any law, contract, instrument, arrangement or agreement
by which the Company is bound.
2.3 No Indirect Conduct. No Stockholder shall engage in any conduct or
take any action through any agent or any entity acting in concert with such
Stockholder that the Stockholder has hereby agreed not to engage in or take.
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SECTION 3. COVENANTS OF THE COMPANY.
3.1 Registration Rights. During the term and subject to all of the
provisions hereof (including, without limitation Section 1.6(vi)), the Company
agrees to provide registration rights to each Stockholder on the terms and
subject to the provisions set forth in Registration Rights Agreement attached as
Appendix I hereto.
3.2 Access to Management. The Company agrees that so long as a
Stockholder continues to hold 5% or more (or in the case of Debra Buruchian and
Thomas Gravina, 2% or more) of any class of Voting Securities, the Company shall
provide such Stockholder with an opportunity on a regularly scheduled basis to
review with senior management of the Company, significant issues facing the
Company; provided, however, that such Stockholder shall agree (i) to maintain
the confidentiality of any non-public information disclosed to such Stockholder
in any such session, and (ii) if necessary, refrain from engaging in any
transaction involving (x) the Company's securities while in possession of any
material non-public information about the Company disclosed to such Stockholder
by the Company in the course of the Company's complying with the provisions of
this Section 3.2 or (y) or any other securities to which such material
non-public information relates.
SECTION 4. TERM OF AGREEMENT.
The term of this Agreement shall commence at the Effective Time and
shall terminate with respect to any given Stockholder (but only such
Stockholder) (x) in the case of Michael Karp and The Florence Karp Trust, when
such Stockholders (together with any transferees who are members of such
Stockholder's immediate family or entities described in clause (v) of Section
1.6 hereof) ceased to own Voting Securities having, in the aggregate, 5% or more
of the Total Voting Power, and (y) in the case of each of Debra Buruchian and
Thomas Gravina, when such Stockholder (together with any transferees who are
members of such Stockholder's immediate family or entities described in clause
(v) of Section 1.6 hereof) ceases to own less than 50% of the Voting Securities
issued to such party pursuant to the Recapitalization (after giving effect to
any stock splits or stock dividends), unless the transaction or transactions
which resulted in such Stockholder ceasing to hold such threshold number or
percentage of Voting Securities shall have violated the terms of this Agreement.
For purposes hereof, ownership of Voting Securities shall include record
ownership of such securities as well as beneficial ownership thereof within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
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SECTION 5. MISCELLANEOUS.
5.1 Specific Performance. The Company and each Stockholder acknowledge
and agree that irreparable damage would occur in the event any of the provisions
of this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the Company or a
Stockholder, as the case may be, shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically, the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction, in addition to any other remedy
to which it may be entitled at law or equity.
5.2 The Term "Company." The term "Company" shall be deemed to include
any successor to the Company by way of merger, consolidation, sale of assets or
otherwise, except as the context otherwise requires, it being the intention
hereof that this Agreement shall continue to be binding on each Stockholder
notwithstanding such merger, consolidation, sale of assets or other succession,
unless the provisions of Section 4.2 of this Agreement shall otherwise provide.
5.3 The Terms "Affiliate," Associate," "Beneficial Owner" "Entity,"
and "Person." As used herein, the term "affiliate" shall have the meaning set
forth in Rule 12b-2 under the Exchange Act; the term "beneficial owner" (which
shall include "beneficially owned" or other similar phrasing as used herein)
shall have the meaning set forth in Section 13(d)(3) of the Securities Act; the
term "associate" shall mean (1) a corporation or organization (other than the
Company or a subsidiary of the Company) of which such Person (as defined herein)
is an officer or partner or is, directly or indirectly, the beneficial owner of
10 percent or more of any class of equity securities, (2) any trust or other
estate in which such Person has a substantial beneficial interest or as to which
such Person serves as trustee or in a similar capacity, and (3) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person; and the term "Person" shall mean any individual, partnership,
corporation, joint venture, association, unincorporated organization, trust,
government or agency thereof, or any other entity.
5.4 The Term "Total Voting Power." The term "Total Voting Power," as
used in this Agreement, shall mean the aggregate voting power of all Voting
Securities outstanding at the time of any determination which at such time have
ordinary voting power to vote in the election of directors of the Company. In
determining Total Voting Power for purposes of this Agreement, the Stockholder
may conclusively rely on the most recent reports filed by the Company with the
SEC in which the number of Voting Securities outstanding is set forth or from
which Total
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Voting Power can reasonably be derived, it being understood that each
Stockholder shall not be considered to be in breach of this Agreement if he/she
has acted in good faith on the basis of a determination of Total Voting Power as
contemplated herein.
5.5 Notices. All notices, requests and other communications to any
person named hereunder shall be in writing (including wire, telex or similar
writing) and shall be given to such person at its address set forth below or
such address or telex number as such person may hereafter specify for the
purpose by notice to the other person:
If to the Company:
ATX Telecommunications Services, Inc.
[address]
Attention:
Copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider, Esq.
Facsimile: 212-757-3990
If to any Stockholder, to the most current address of such
Stockholder provided by such Stockholder to the Company in writing
Each such notice, request or other communication shall be effective (a) if given
by facsimile, when such facsimile is transmitted to the facsimile number
specified in this subsection and the appropriate answer back is received or (b)
if given by any other means, when actually received at the address specified in
this subsection, provided that a notice given other than during normal business
hours on a business day at the place of receipt shall not be effective until the
opening of business on the next business day.
5.6 Governing Law and Jurisdiction. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE
TO AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE. THE UNDERSIGNED
HEREBY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURTS
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LOCATED WITHIN THE STATE OF DELAWARE, COUNTY OF NEW CASTLE, AND WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION OR PROCEEDING RELATING HERETO.
5.7 Amendments. This Agreement may be amended, modified or
supplemented only by written agreement of each Stockholder and the Company.
5.8 Waiver. Any failure of any party to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefit of such obligation, covenant, agreement or condition only by a
written instrument signed by such party, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other non-compliance. Wherever this Agreement requires or permits consent by or
on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 5.8.
5.9 Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, including, without
limitation, (i) any person who acquires any interest, beneficial or otherwise,
in Voting Securities by will or pursuant to the laws of descent and distribution
and (ii) any successor trust.
5.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.11 Entire Agreement. This Agreement, including the appendices
referred to herein, embodies the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, representations, warranties, covenants or undertakings,
other than those expressly set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
5.12 Severability. If any provision of this Agreement shall be deemed
or declared to be unenforceable, invalid or void, the same shall not impair any
of the other provisions of this Agreement.
5.13 Other Rights and Privileges. Except as otherwise specifically set
forth in this Agreement, each Stockholder shall have and enjoy all rights and
privileges otherwise permitted stockholders of the Company under applicable law.
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IN WITNESS WHEREOF, each Stockholder and the Company have duly
executed this Agreement as of day and year first above written.
ATX TELECOMMUNICATIONS
SERVICES, INC.
By:
-----------------------------
Name:
Title:
STOCKHOLDERS:
------------------------------
Michael Karp
------------------------------
Debra Buruchian
------------------------------
Thomas Gravina
THE FLORENCE KARP TRUST
By:
------------------------------
Name:
Title:
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EXHIBIT G
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of ___________, 2000 (the
"Agreement"), by and between ATX Telecommunications Services, Inc. , a Delaware
corporation (the "Company"), and each of Michael Karp ("Karp"), Debra Buruchian
("Buruchian"), Thomas Gravina ("Gravina") and The Florence Karp Trust (the
"Trust"). Each of Karp, Buruchian, Gravina and the Trust is referred to as a
"Stockholder").
WHEREAS, pursuant to a Recapitalization Agreement and Plan of Merger,
dated as of March ___, 2000 (the "Recapitalization and Merger Agreement"), by
and among the Company, CoreComm Limited ("CoreComm"), and, with respect to
certain provisions thereof, each of Karp, Buruchian, Gravina and the Trust, the
Company is being recapitalized by exchanging each share of pre-recapitalization
share of the Company's common stock for _____ shares of the Company's
post-recapitalization common stock, par value $.01 per share (the "Common
Stock"), _____ shares of the Company 3% Convertible Preferred Stock, par value
$.01 per share (the "Preferred Stock"), and $ _____ in cash and notes.
WHEREAS, the Stockholders are the holders of all of the outstanding
pre-recapitalization shares of the Company's common stock and it is a condition
to the consummation of the recapitalization and the other transactions
contemplated by the Recapitalization and Merger Agreement that the Company grant
to the Stockholders the registration rights and other rights set forth herein;
and
In consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. General; Securities Subject to this Agreement.
1.1 Grant of Rights. The Company hereby grants
registration rights to the Stockholders upon the terms and subject to the
conditions set forth in this Agreement. Capitalized terms used herein and not
defined shall have the meanings assigned to such terms in the Recapitalization
and Merger Agreement.
1.2 Registrable Securities. For the purposes of this
Agreement, "Registrable Securities" means, each of the following: (a) any shares
of Common Stock issued to the Stockholders pursuant to the Recapitalization and
Merger Agreement, (b) any shares of Preferred Stock issued to the Stockholders
pursuant to the Recapitalization and Merger Agreement, and (c) any shares of
Common Stock issued upon conversion of, or as payment of dividends on, or in
exchange for shares of the Preferred Stock issued pursuant to the
Recapitalization and Merger Agreement; provided, however, that shares shall
cease to be Registrable Securities for purposes of this Agreement when a
registration statement covering such Registrable Securities has been declared
effective under the Securities Act by the SEC and all such Registrable
Securities have been disposed of pursuant to such effective registration
statement.
<PAGE> 81
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1.3 Stockholders of Registrable Securities. A Person is
deemed to be a holder of Registrable Securities whenever such Person (i) is a
party to this Agreement (or a permitted transferee thereof) and (ii) owns of
record Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more Persons with respect to the same
Registrable Securities, the Company may act upon the basis of the instructions,
notice or election received from the registered owner of such Registrable
Securities.
2. Demand Registration Rights.
2.1 Demand Registration.
(a) At any time on or after [date]1/, the Stockholders
may make a written request (specifying the intended method of disposition) (such
Stockholders, the "Initiating Common Stockholders") for registration under the
Securities Act (a "Demand Common Registration") of all or part of the shares of
Common Stock which constitute such Initiating Stockholders' Registrable
Securities; provided, however, that, (i) the Company shall not be required to
effect more than two (2) Demand Common Registrations pursuant to this Agreement,
(ii) the market value of the shares of Common Stock proposed to be registered by
the Initiating Common Stockholders shall not be less than 1,500,000 shares
(subject to appropriate adjustments to reflect stock splits, stock dividends,
corporate recapitalizations or similar transactions) as of the date of the
request, and (iii) the Initiating Common Stockholders shall be the holders as of
the date of the request of at least 25% of the then outstanding shares of Common
Stock that constitute Registrable Securities hereunder; provided, however, that
one such Demand Common Registration may be requested by Initiating Common
Stockholders owning less than 25% of the then outstanding shares of Common Stock
that constitute Registrable Securities hereunder so long as such Initiating
Common Stockholders are the holders as of the date of the request of at least
10% of the then outstanding shares of Common Stock that constitute Registrable
Securities hereunder.
(b) At any time after the date hereof, the Stockholders
may make a written request (specifying the intended method of disposition) (such
Stockholders, the "Initiating Preferred Stockholders") for registration under
the Securities Act (a "Demand Preferred Registration") of all or part of the
shares of Preferred Stock which constitute such Initiating Stockholders'
Registrable Securities; provided, however, that, (i) the Company shall not be
required to effect more than one such Demand Preferred Registration pursuant to
this Agreement, (ii) the face value of the shares of Preferred Stock proposed to
be registered by the Initiating Stockholders shall not be less than $80,000,000
as of the date of the request, and (iii) the Initiating Preferred Stockholders
shall be the holders as of the date of the request of at least 25% of the then
outstanding shares of Preferred Stock that constitute Registrable Securities
hereunder.
- ------------------------------
1/ Nine months from the Closing Date.
<PAGE> 82
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(c) If at the time of any request to register Registrable
Securities pursuant to this Section 2.1, the Company is engaged or plans to
engage in within ninety (90) days of the time of such request in a registered
public offering or any other activity which, in the good faith determination of
the Board of Directors of the Company, would be required to be disclosed under
applicable law as a result of such request or would be materially and adversely
affected by the requested registration (each, a "Company Event"), then the
Company may at its option direct that such request be delayed for a reasonable
period of time not in excess of three (3) months from the effective date of such
offering or the date of completion of such other activity, as the case may be,
such right to delay a request to be exercised by the Company not more than once
in any 365-day period; provided, however, that if the Company receives a written
request from Initiating Common Stockholders or the Initiating Preferred
Stockholders (the "Initiating Stockholders") to register the Registrable
Securities of such Stockholders prior to the occurrence of a Company Event, then
such registration shall not be delayed by any Registration Statement thereafter
effected by the Company. In addition, the Company shall not be required to
effect any registration within three (3) months after the effective date of any
other Registration Statement of the Company. Within ten days after receipt of a
request for a Demand Common Registration or a Demand Preferred Registration
(each, a "Demand Registration"), the Company shall give written notice (the
"Notice") of such request to all other Stockholders holding the class of stock
to which such Demand Registration relates and shall include in such registration
all Registrable Securities of that class that the Company has received written
requests for inclusion therein within 15 days after the Notice is given.
Thereafter, in the case of Demand Common Registration, the Company may elect to
include in such registration additional shares of Common Stock issued by the
Company. All requests made pursuant to this Section 2.1 shall specify the class
and aggregate number of Registrable Securities to be registered.
2.2 Effective Demand Registration. The Company shall use
reasonable commercial efforts to cause any Demand Registration to become
effective not later than ninety (90) days after it receives a request under
Section 2.1 hereof and to remain effective for the lesser of (i) the period
during which all Registrable Securities registered in the Demand Registration
are sold and (ii) one hundred and twenty (120) days; provided, however, that if
the Initiating Stockholders request the Company to withdraw such registration,
other than as the result of a breach by the Company, it shall constitute a
Demand Registration unless the Initiating Stockholders promptly pay all of the
costs and expenses incurred by the Company in connection with such registration.
2.3 Underwriting Procedures.
(a) The offering of Registrable Securities
pursuant to a Demand Registration shall be in the form of a firm commitment
underwritten offering and the managing underwriter and other underwriters
selected for such offering shall be selected by the Initiating Stockholders,
provided that the managing underwriter and other underwriters are reasonably
acceptable to the Company (having
<PAGE> 83
4
due regard to the experience and relationship with the Company of the managing
underwriter and the other underwriters) (the "Approved Underwriter"). In such
event, if the Approved Underwriter advises the Company in writing that in its
opinion the aggregate amount of such Registrable Securities requested to be
included in such offering is sufficiently large to have a material adverse
effect on the success of such offering, the Company shall include in such
registration only the aggregate amount of Registrable Securities that in the
opinion of the Approved Underwriter may be sold without any such material
adverse effect and shall reduce pro rata based on the number of Registrable
Securities included in the request for Demand Registration, the amount of
Registrable Securities to be included by each Stockholder in such registration.
(b) Distribution by Underwriters. The managing
underwriter or underwriters selected for any offering shall enter into an
agreement with the Company and the Stockholders whereby the underwriters shall
be prohibited from (i) distributing 5% or greater of the Registrable Securities
to any Person in connection with the initial placement of the Registrable
Securities for the offering and from (ii) distributing 5% or greater of the
Registrable Securities to any Person for 90 days after such initial placement.
3. Incidental or "Piggy-Back" Registration Rights.
3.1 Notice of Registration. If, at any time or from time
to time prior to the fourth anniversary of the date hereof, the Company shall
determine to register any of its Common Stock for sale in an Underwritten
Offering for its own account (other than a registration relating to (i) a
registration of an employee compensation plan or arrangement adopted in the
ordinary course of business on Form S-8 (or any successor form) or any dividend
reinvestment plan or (ii) a registration of securities on Form S-4 (or any
successor form) including, without limitation, in connection with a proposed
issuance in exchange for securities or assets of, or in connection with a merger
or consolidation with another corporation) (a "Company Registration"), or shall
register any of its Common Stock pursuant to a demand request for registration
by any holder of the Company's Common Stock other than the Stockholders (a
"Third Party Demand Registration"), the Company will promptly give to the
Stockholders written notice thereof, and include in such registration (subject
to Section 3.2) all the Common Stock Registrable Securities specified in a
written request made by any one or more of the Stockholders within ten days
after such Stockholder's receipt of such written notice from the Company
("Incidental Registration"). The right of the Stockholder to have Common Stock
Registrable Securities included in a registration pursuant to this Section 3.1
shall be conditioned upon such Stockholder entering into (together with the
Company and/or the other holders, if any, distributing their securities through
such underwriting) an underwriting agreement in customary form with the managing
underwriter or underwriters selected for such underwriting by the Company or by
the stockholders who have demanded such registration (the "Company
Underwriter").
<PAGE> 84
5
3.2 Cutback. If the lead managing underwriter of an
offering covered by Section 3.1 shall advise the Company in writing on or before
the date five days prior to the date then scheduled for such offering that, in
its opinion, the amount of Common Stock (including Common Stock Registrable
Securities) requested to be included in such registration exceeds the amount
which can be sold in such offering without adversely affecting the distribution
of the Common Stock being offered, then the Company will include in such
registration:
(i) in the case of a Company Registration, first, any shares
proposed to be offered by the Company; second, Registrable Securities
requested to be registered by the Stockholders and any other shares
requested by other stockholders of the Company, including the Stockholders,
to be included in such registration, allocated, if necessary, pro rata
among the Stockholders and such other holders requesting such registration
on the basis of the number of the shares Beneficially Owned at the time;
and
(ii) in the case of a Third Party Demand Registration, first,
any shares proposed to be offered by the stockholder or stockholders
exercising their right to cause the Company to proceed with such Third
Party Demand Registration (the "Initiating Third Party Holders"), second,
any shares proposed to be offered by the Company, and third, Registrable
Securities requested to be registered by the Stockholders and any other
shares requested by other stockholders of the Company, including the
Stockholders but excluding the Initiating Third Party Holders, to be
included in such registration, allocated, if necessary, pro rata among the
Stockholders and such other holders requesting such registration on the
basis of the number of the shares Beneficially Owned at the time;
provided, however, that in the event the Company will not, by virtue of the
foregoing cut-back mechanism, include in any such registration all of the Common
Stock Registrable Securities requested to be included in such registration, the
Stockholders may, upon written notice to the Company given within three days of
the time the Stockholders first are notified of such matter, reduce the amount
of Registrable Securities they desire to have included in such registration,
whereupon only the Registrable Securities, if any, they desire to have included
will be considered for such inclusion.
3.3 Right of Termination. The Company shall have the
right to terminate or withdraw any registration initiated by it under Section
3.2 prior to the effectiveness of such registration whether or not the
Stockholders have elected to include Registrable Securities in such
registration.
4. Provisions Applicable to Demand and Piggy-Back Registrations.
4.1 Expenses. The Company shall pay all Registration
Expenses (as defined in Section 6 hereof) incurred in connection with any
registration
<PAGE> 85
6
pursuant to Section 2 or 3 hereto, unless registration fails to become effective
as a result of the fault of one or more Stockholders, in which case the Company
will not be required to pay the Registration Expenses incurred with respect to
the offering of such Stockholder's or Stockholders' Registrable Securities. The
Registration Expenses incurred with respect to the offering of such
Stockholder's or Stockholders' Registrable Securities shall be the product of
(a) the aggregate amount of all Registration Expenses incurred in connection
with such registration and (b) the ratio that the number of such Registrable
Securities bears to the total number of Registrable Securities included in the
registration.
4.2 Holdback Agreements. Each Stockholder agrees not to
effect any public sale or distribution of any Registrable Securities being
registered or of any securities convertible into or exchangeable or exercisable
for such Registrable Securities, including a sale pursuant to Rule 144 under the
Act, during the ninety (90) day period beginning on the effective date of any
Demand Registration or Incidental Registration or other underwritten offering in
which such Stockholder is participating (except as part of such registration),
if and to the extent requested by any other Stockholders, in the case of a
non-underwritten public offering, or if and to the extent requested by the
Company Underwriter, in the case of an under-written public offering.
5. Registration Procedures.
In connection with any registration statement filed pursuant
to this Agreement, the Company will, as expeditiously as possible:
(a) in connection with a request pursuant to this
Agreement, prepare and file with the Commission, after receipt of a request to
file a registration statement with respect to Registrable Securities, a
registration statement on any form for which the Company then qualifies or which
counsel for the Company shall deem appropriate and which form shall be available
for the sale of such Registrable Securities in accordance with the intended
method of distribution thereof and, if the offering is an underwritten offering,
shall be reasonably satisfactory to the managing underwriter or underwriters,
and use its best efforts to cause such registration statement to become
effective; provided, however, that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company shall (i)
furnish to the counsel selected by the Stockholder or Stockholders making the
demand, if any, copies of all such documents proposed to be filed, and (ii)
notify such counsel and each seller or prospective seller of Registrable
Securities of any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered;
(b) in connection with a registration pursuant to this
Agreement, prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
of not more than one hundred and twenty (120) days (or such shorter period that
will terminate
<PAGE> 86
7
when all Registrable Securities covered by such registration statement have been
disposed of);
(c) furnish to each seller of Registrable Securities such
number of copies of the registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto), the prospectus included
in such registration statement (including each preliminary prospectus) and such
other documents as each seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(d) use reasonable efforts to register or qualify such
Registrable Securities under such other securities or "blue sky" laws of such
jurisdictions as any seller or underwriter reasonably requests in writing and to
do any and all other acts and things that may be reasonably necessary or
advisable to register or qualify for sale in such jurisdictions the Registrable
Securities owned by such seller; provided, however, that the Company shall not
be required to (i) qualify generally to do business in any jurisdiction where it
is not then so qualified, (ii) subject itself to taxation in any such
jurisdiction, (iii) consent to general service of process in any such
jurisdiction or (iv) provide any undertaking required by such other securities
or "blue sky" laws or make any change in its charter or by-laws that the Board
of Directors of the Company determines in good faith to be contrary to the best
interest of the Company and its Stockholders;
(e) use reasonable efforts to cause the Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Company to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such Registrable Securities;
(f) notify each seller of such Registrable Securities at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and prepare and file
with the Commission as soon thereafter as practicable, after consultation with
the Initiating Stockholders, a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading;
(g) enter into customary agreements (including an
underwriting agreement in customary form, if the offering is an underwritten
offering) and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of such Registrable Securities;
<PAGE> 87
8
(h) otherwise use reasonable efforts to comply with all
applicable rules and regulations of the Commission; and
(i) use reasonable efforts to cause all Registrable
Securities covered by the registration statement to be listed on each securities
exchange or market, if any, on which similar securities issued by the Company
are then listed, provided that the applicable listing requirements are
satisfied.
The Company may require each seller or prospective seller of
Registrable Securities as to which any registration is being effected to furnish
to the Company such information regarding the distribution of such securities
and other matters as may be required to be included in the registration
statement.
Each holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
paragraph (f) of this Section 5, such holder shall forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such holder's receipt of the copies
of the supplemented or amended prospectus contemplated by paragraph (f) of this
Section 5 and, if so directed by the Company, such holder shall deliver to the
Company all copies, other than permanent file copies then in such holder's
possession or copies delivered to prospective purchasers, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. If the Company shall give any such notice, the Company shall extend the
period during which such registration statement shall be maintained effective
pursuant to this Agreement (including the period referred to in paragraph (b) of
this Section 5) by the number of days during the period from and including the
date of the giving of such notice pursuant to paragraph (f) of this Section 5 to
and including the date when each seller of Registrable Securities covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by paragraph (f) of this Section 5.
6. Registration Expenses. The Company shall pay all expenses
incident to its performance of or compliance with this Agreement; provided,
however, that the Company shall not pay the costs and expenses of any
Stockholder relating to underwriters' commissions and discounts relating to
Registrable Securities to be sold by such Stockholder, brokerage fees, transfer
taxes or the fees or expenses of any counsel, accountants or other
representatives retained by the Stockholders, individually or in the aggregate.
All of the expenses described in this Section 6 that are to be paid by the
Company are herein called the "Registration Expenses."
7. Indemnification; Contribution.
7.1 Indemnification by the Company. The Company agrees
to indemnify, in the case of any registration statement filed pursuant to this
Agreement, each seller of any Registrable Securities covered by such
registration statement, each other person who participates as an underwriter in
the offering or sale of such securities, and each person, if any, who controls
such seller or any such
<PAGE> 88
9
underwriter within the meaning of the Securities Act (collectively, the
"Indemnified Parties") against any losses, claims, damages or liabilities to
which such Indemnified Party may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein in
light of the circumstances in which they were made not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company; provided, however, that the Company shall
not be liable to the extent that any loss, claim, or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Indemnified Party expressly for use in the
Registration Statement; provided, further, that the Company shall not be liable
to any seller of Registrable Securities (or to any person who acts as an
underwriter in such sale or who controls such seller) to the extent that any
loss, claim, or liability arises out of an untrue statement, alleged untrue
statement, omission, or alleged omission made in any preliminary prospectus if
either (a)(i) such seller failed to send or deliver a copy of the prospectus
with or prior to written confirmation of the sale by such seller to the person
asserting the claim and (ii) the prospectus would have corrected such untrue
statement, alleged untrue statement, omission or alleged omission; or (b)(x)
such untrue statement, alleged untrue statement, omission or alleged omission is
corrected in an amendment or supplement to the prospectus and (y) having been
furnished by or on behalf of the Company with copies of the prospectus as so
amended or supplemented, such seller fails to deliver such prospectus as so
amended or supplemented, with or prior to the written confirmation of the sale
by such seller to the person asserting the claim.
7.2 Indemnification by Stockholders. In connection with
any registration statement in which a Stockholder is participating, each such
Stockholder shall furnish to the Company in writing such information and
affidavits with respect to such Stockholder as the Company reasonably requests
for use in connection with any such registration statement or prospectus and
agrees to indemnify, to the fullest extent permitted by law, the Company, its
officers, directors and agents and each person, if any, who controls the Company
(within the meaning of the Securities Act) against any and all losses, claims,
damages, and liabilities resulting from any untrue or alleged untrue statement
of a material fact or any omission or alleged omission of a material fact
required to be stated in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or necessary to make
the statements therein (in the case of a prospectus, in light of the
circumstances under which they were made) not misleading, to the extent that
such untrue or alleged untrue statement or omission is contained in or omitted
from, as the case may be, any information or affidavit with respect to such
Stockholder so
<PAGE> 89
10
furnished in writing by such Stockholder expressly for use in any such
prospectus or preliminary prospectus; provided, however, that the liability of
such Stockholder shall not exceed the net proceeds received by such Stockholder
from the sale of its Registrable Securities. Each Stockholder also shall
indemnify any underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the Company; provided, however, that the indemnification of
such Stockholder shall be limited to the net proceeds received by such
Stockholder from the sale of its Registrable Securities.
7.3 Contribution. If the indemnification provided for in
this Section 7 is unavailable to any indemnified party hereunder in respect of
any losses, claims, damages, liabilities or expenses referred to herein, then
the indemnifying party, to the extent such indemnification is unavailable, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the indemnifying party and indemnified parties in
connection with the actions that resulted in such losses, claims, damages,
liabilities or expenses. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7.3 were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person.
8. Definitions. As used herein, the following terms shall have
the following respective meanings:
"Beneficial Ownership" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
"Board of Directors" means the board of directors of the
Company.
"Commission" means the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
<PAGE> 90
11
"Common Stock" means the common stock of the Company or any
other equity securities of the Company into which such securities are converted,
reclassified, reconstituted or exchanged.
"Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
any such entity.
"Registration Expenses" shall have the meaning specified in
Section 6 herein.
"Securities Act" means the Securities Act of 1933, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Underwritten Offering" shall mean a sale of securities of the
Company to an underwriter or underwriters for re-offering to the public, which
shall include a road show and other customary selling efforts.
9. Miscellaneous.
9.1 Limitations on Subsequent Registration Rights. From
and after the date of this Agreement, the Company shall not, without the prior
written consent of the holders of a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
2.1(a) hereof, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of such securities will not reduce the amount of
the Registrable Securities of the holders which is included, or (b) to make a
demand registration which could result in such registration statement being
declared effective within ninety (90) days of the effective date of any
registration effected pursuant to Section 2.1.
9.2 Assignment. The rights of the Stockholders to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assignable by each Stockholder to any transferee (other than the
transferee of such shares in a registered transaction) of all or any portion of
the Registrable Securities if: (i) the Stockholder agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company after such assignment, (ii) the Company is furnished
with written notice of (a) the name and address of such transferee or assignee,
and (b) the securities with respect to which such registration rights are being
transferred or assigned, (iii) the transferee or assignee agrees in writing for
the benefit of the Company to be bound by all of the provisions contained
herein, and (iv) if required under the terms of the Stockholders Agreement, such
transferee enters into the requisite stockholders
<PAGE> 91
12
agreement with the Company as contemplated by the Stockholders Agreement, of
even date herewith, among the Company and each of Karp, Buruchian, Gravina and
the Trust (the "Stockholders Agreement").
9.3 Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of the
Stockholders that own, in the aggregate, 50% or more of the Registrable
Securities then outstanding.
9.4 Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally,
telecopied (and confirmed) or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered
personally, telecopied (and confirmed) or, if mailed, five days (or, in the case
of express mail, one day) after the date of deposit in the United States mail,
as follows:
(i) if to the Company, to:
[ATX Telecommunications Services, Inc.]
110 East 59th Street
26th Floor
New York, NY 10022
Attention: Richard J. Lubasch
Telecopier No.: (212) 906-8497
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Kenneth M. Schneider, Esq.
Telecopier No.: (212) 757-3990
(ii) if to any Stockholder, to the most current address of such
Stockholder provided by such Stockholder to the Company in
writing.
with copies to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 South Broad Street
Philadelphia, PA 19102
Attention: Michael C. Forman, Esq.
Telecopier No.: (215) 568-6603
<PAGE> 92
13
Any party may by notice given in accordance with this section to the
other parties designate another address or person for receipt of notices
hereunder.
9.5 Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the Stockholders and their permitted
successors and assigns as provided for in Section 9.1 hereof and the successors
and assigns of the Company; provided, however, that such successors and assigns
become parties to this Agreement by executing counterparts thereto and, in the
case of successors and assigns of the Stockholder, there has been compliance
with Section 9.1 hereof.
9.6 Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
9.7 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
9.8 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 NEW YORK OR ANY OTHER
JURISDICTION.
9.9 Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired.
9.10 Entire Agreement. This Agreement is entered into and
delivered pursuant to the Recapitalization and Merger Agreement and as such
contains the entire agreements among the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings, written or
oral, with respect thereto.
<PAGE> 93
14
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the date first written above.
ATX TELECOMMUNICATIONS SERVICES, INC.
By:
-----------------------------
Name:
Title:
STOCKHOLDERS:
------------------------------
Michael Karp
------------------------------
Debra Buruchian
------------------------------
Thomas Gravina
THE FLORENCE KARP TRUST
By:
-----------------------------
Name:
Title:
<PAGE> 1
Exhibit 2.3
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
CORECOMM LIMITED,
CORECOMM GROUP SUB I, INC.
AND
VOYAGER.NET, INC.
Dated as of March 12, 2000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER ........................................................................ 2
1.1 The Merger .................................................................. 2
1.2 Effective Time .............................................................. 2
1.3 Closing ..................................................................... 3
1.4 Tax Consequences ............................................................ 3
ARTICLE II DIRECTORS AND OFFICERS
OF ThE SURVIVING CORPORATION .................................................... 3
2.1 Directors of die Surviving Corporation ...................................... 3
2.2 Officers of the Surviving Corporation ....................................... 4
ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS ................................................. 4
3.1 Effect on Capital Stock ..................................................... 4
3.2 Company Stock Options and Related Matters ................................... 7
ARTICLE IV PAYMENT OF SHARES ................................................................ 8
4.1 Payment for Shares of Company Common Stock .................................. 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY. .................................... 11
5.1 Existence; Good Standing; Authority; Compliance With Law .................... 11
5.2 Authorization, Validity and Effect of Agreements ............................ 13
5.3 Capitalization .............................................................. 14
5.4 Subsidiaries ................................................................ 15
5.5 Other Interests ............................................................. 15
5.6 No Violation; Consents ...................................................... 15
5.7 SEC Documents ............................................................... 16
5.8 Litigation .................................................................. 17
5.9 Absence of Certain Changes .................................................. 17
5.10 Taxes ....................................................................... 19
5.11 Real Property Leases; Properties. ........................................... 20
5.12 Intellectual Property ....................................................... 22
5.13 Environmental Matters ....................................................... 24
5.14 Employee Benefit Plans ...................................................... 25
5.15 Labor Matters ............................................................... 27
5.16 No Brokers .................................................................. 28
5.17 Opinion of Financial Advisor . .............................................. 28
5.18 Non-Competition Agreements .................................................. 28
5.19 Material Contracts .......................................................... 28
5.20 Certain Agreements .......................................................... 29
5.21 Subscribers ................................................................. 30
5.22 Information ................................................................. 30
5.23 Vote Required ............................................................... 30
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.24 Definition of the Companys Knowledge ....................................... 30
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PARENT ......................................... 31
6.1 Existence; Good Standing; Authority; Compliance With Law .................... 31
6.2 Authorization, Validity and Effect of Agreement ............................. 32
6.3 Capitalization .............................................................. 32
6.4 Subsidiaries ................................................................ 33
6.5 Other Interests ............................................................. 33
6.6 No Violation; Consents ...................................................... 34
6.7 SEC Documents ............................................................... 34
6.8 Litigation .................................................................. 35
6.9 Absence of Certain Changes .................................................. 35
6.10 Intellectual Property ....................................................... 36
6.11 No Brokers .................................................................. 36
6.12 Opinion of Financial Advisor ................................................ 36
6.13 Taxes ....................................................................... 36
6.14 Employee Benefit Plans ...................................................... 37
6.15 Definition of Parents Knowledge ............................................. 37
ARTICLE VII COVENANTS ...................................................................... 37
7.1 No Solicitations ............................................................ 37
7.2 Conduct of Businesses ....................................................... 39
7.3 Tax-Free Treatment .......................................................... 42
ARTICLE VIII ADDITIONAL AGREEMENTS ......................................................... 43
8.1 Meetings of Stockholders .................................................... 43
8.2 HSR and Other Filings ....................................................... 43
8.3 Proxy Statement; Registration Statement ..................................... 45
8.4 Listing Application ......................................................... 46
8.5 Affiliates of the Company ................................................... 46
8.6 Expenses .................................................................... 47
8.7 Officers and Directors Indemnification ...................................... 47
8.8 Access to Information; Confidentiality ...................................... 49
8.9 Publicity ................................................................... 49
8.10 Employee Benefits ........................................................... 50
8.11 Reincorporation and Acquisition ............................................. 50
8.12 Other Actions ............................................................... 51
8.13 Notification of Certain Matters ............................................. 51
8.14 Notification of Parent Transactions ......................................... 52
ARTICLE IX CONDITIONS TO THE MERGER ......................................................... 52
9.1 Conditions to the Obligations of Each Party ................................. 52
9.2 Conditions to Obligations of the Company .................................... 53
9.3 Conditions to Obligations of Parent ......................................... 54
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
9.4 Parent Transactions ........................................................ 55
ARTICLE X TERMINATION, AMENDMENT AND WAIVER ................................................ 55
10.1 Termination ................................................................ 55
10.2 Effect of Termination ...................................................... 58
10.3 Amendment .................................................................. 58
ARTICLE XI GENERAL PROVISIONS .............................................................. 59
11.1 Notices .................................................................... 59
11.2 Certain Definitions ........................................................ 60
11.3 Non-Survival of Representations, Warranties, Covenants and Agreement ...... 60
11.4 Miscellaneous .............................................................. 60
11.5 Assignment ................................................................. 61
11.6 Severability ............................................................... 61
11.7 Choice of Law/Consent to Jurisdiction ...................................... 61
11.8 Incorporation .............................................................. 62
11.9 The Headings ............................................................... 62
11.10 No Agreement Until Executed ................................................ 62
11.11 Obligations of Parent and of the Company ................................... 62
</TABLE>
Exhibits
Exhibit A Affiliate Letter
Exhibit B Registration Rights Agreement
Exhibit C Stockholders Agreement
(iii)
<PAGE> 5
Company Disclosure Schedule
<TABLE>
<CAPTION>
Section Title
- ------- -----
<S> <C>
5.1(b) Organizational and Good Standing
5.1 Organizational Documents
5.1(f) Communications Permits
5.1(g) Violations of Communications Permits
5.3 Capitalization
5.4 Subsidiaries
5.5 Other Interests
5.6(a) No Violations
5.6(b) Consents
5.8 Litigation
5.9 Absence of Certain Changes
5.10 Taxes
5.11 Real Property Leases; Properties
5.12(a) Intellectual Property
5.12(b) Intellectual Property Licenses
5.12(c) Intellectual Property Enforcement Actions
5.13 Environmental Matters
5.14(a) Company Benefit Plans
5.14(b) Employee Matters
5.14(c) Employee Compensation
5.15 Labor Matters
5.18 Non-Competition Agreements
5.19(a) Material Contracts
5.19(b) Other Contracts
5.19(c) Circuit Schedule
5.20 Certain Agreements
7.2(a) Conduct by the Company
8.12 Pricing Policies
</TABLE>
Parent Disclosure Schedule
<TABLE>
<CAPTION>
Section Title
- ------- -----
<S> <C>
6.1 Organizational and Good Standing
6.3 Capitalization
6.4 Subsidiaries
6.5 Other Interests
6.6(a) No Violations
6.6(b) Consents
6.8 Litigation
6.9 Absence of Certain Changes
</TABLE>
(iv)
<PAGE> 6
<TABLE>
<S> <C>
6.10 Intellectual Property
6.13 Taxes
7.3(b) Conduct by Parent
</TABLE>
(v)
<PAGE> 7
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of March 12,
2000, by and among CoreComm Limited, a Bermuda corporation ("Parent"), CoreComm
Group Sub I, Inc., a Delaware corporation and a wholly owned subsidiary of
Parent ("MergerCo"), and Voyager.net, Inc., a Delaware corporation (the
"Company").
RECITALS
WHEREAS, the respective Boards of Directors of Parent, MergerCo and the
Company have approved the merger of MergerCo with and into the Company (the
"Merger") in accordance with the Delaware General Corporation Law (the "DGCL")
and, upon the terms and subject to the conditions set forth in this Agreement,
holders of shares of common stock, par value $.0001 per share, of the Company
(the "Company Common Stock") issued and outstanding immediately prior to the
Effective Time (as hereinafter defined) will be entitled, subject to the terms
and conditions hereof, to the right to receive shares of common stock, par value
$.01 per share, of Parent (the "Parent Common Stock") and cash, without any
interest thereon, subject to certain adjustments;
WHEREAS, the Board of Directors of the Company (the "Company Board")
has, in light of and subject to the terms and conditions set forth herein, (i)
determined that (A) the consideration to be paid for each share of Company
Common Stock in the Merger is fair to the stockholders of the Company, and (B)
the Merger is in the best interests of the Company and its stockholders, and
(ii) resolved to approve and adopt this Agreement and the transactions
contemplated or required by this Agreement, including the Merger (collectively,
the "Transactions"), and to recommend approval and adoption by the stockholders
of the Company of this Agreement and the Transactions;
WHEREAS, as a condition to the willingness of Parent and MergerCo to
enter into this Agreement, Media/Communications Partners II Limited Partnership,
Media/Communications Investors Limited Partnership Glenn R. Friedly and
Christopher P. Torto and certain of their affiliates (collectively, the
"Principal Stockholders") have entered into a Voting Agreement, dated as of the
date hereof, with Parent and MergerCo (the "Voting Agreement"), pursuant to
which each Principal Stockholder has agreed, among other things, to vote such
Principal Stockholder's shares of Company Common Stock in favor of the approval
of the Transactions, upon the terms and subject to the conditions set forth in
the Voting Agreement;
WHEREAS, Parent, MergerCo and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Transactions, and also to prescribe various conditions to the Transactions;
<PAGE> 8
WHEREAS, the parties intend, by executing this Agreement, to either or
both (i) adopt a plan of reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code") and to cause the
Merger to qualify as a reorganization under the provisions of Section 368(a) of
the Code or (ii) agree to a transaction that qualifies as an exchange under the
provisions of Section 351 of the Code; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, Parent, MergerCo and the Company hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company and MergerCo shall consummate the
Merger pursuant to which (a) MergerCo shall be merged with and into the Company
and the separate corporate existence of MergerCo shall thereupon cease, (b) the
Company shall be the successor or surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Delaware and the DGCL, and (c) the separate
corporate existence of the Company with all its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time, all
the properties, rights, privileges, powers and franchises of the Company and
MergerCo shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and MergerCo shall become the debts, liabilities and
duties of the Surviving Corporation. The Company shall take such steps as are
permitted under the DGCL to (i) amend the Certificate of Incorporation of the
Company (the "Company Certificate") so that the Certificate of Incorporation of
MergerCo, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation, and (ii) amend
the Bylaws of the Company (the "Company Bylaws") so that the Bylaws of MergerCo,
as in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law, by the
Certificate of Incorporation of the Surviving Corporation and by such Bylaws.
Notwithstanding the foregoing, the name of the Surviving Corporation shall be
"CoreComm-Voyager, Inc." and the Certificate of Incorporation and Bylaws of the
Surviving Corporation shall so provide. The Merger shall have the effects
specified in the DGCL, including Section 259 of the DGCL.
1.2 Effective Time. As promptly as practicable after all of the
conditions set forth in Article IX shall have been satisfied or, if permissible,
waived by the party entitled to the benefit of the same, MergerCo and the
Company shall duly execute and file a certificate of merger (the "Certificate of
Merger") with the Secretary of State of the State of Delaware in accordance with
the DGCL. The Merger shall become effective as of the time of the Certificate of
Merger has been duly filed or such other subsequent date or time as shall be
2
<PAGE> 9
agreed upon by the parties and set forth in the Certificate of Merger and in
accordance with the DGCL (the "Effective Time").
1.3 Closing. The closing of the Merger (the "Closing") shall take
place at such time and on a date to be specified by the parties, which shall be
no later than the second business day after satisfaction or waiver of all of the
conditions set forth in Article IX hereof (the "Closing Date"), at the offices
of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New
York, NY 10019, unless another date or place is agreed to by the parties hereto.
1.4 Tax Consequences. It is intended by all of the parties hereto
that the Merger will qualify both or either (i) as a reorganization within the
meaning of Section 368(a) of the Code or (ii) a transaction that, together with
the Reincorporation (as defined herein) qualifies as an exchange under the
provisions of Section 351 of the Code and which is treated for U.S. federal
income tax purposes as a transfer of Company Common Stock by the shareholders of
the Company to Parent in exchange for the Merger Consideration. All of the
parties to this Agreement agree to report the Merger, for all purposes, in a
manner which is consistent with the preceding sentence and no party shall take
any action, or fail to take any action which action or failure to take such
action would cause the Merger to fail to qualify (i) as a reorganization within
the meaning of Section 368(a) of the Code or (ii) a transaction that, together
with the Reincorporation (as defined herein) qualifies as an exchange under the
provisions of Section 351 of the Code and which is treated for U.S. federal
income tax purposes as a transfer of Company Common Stock by the shareholders of
the Company to Parent in exchange for the Merger Consideration. However, it is
further intended by all of the parties hereto that if the transactions with ATX
Communications Services, Inc. ("ATX") described in Section 8.11 occur, and this
Agreement is assigned as provided in Section 11.5, then the incorporation of
ATX, the transactions with ATX described in Section 8.11, and the transactions
described in this Agreement will be treated for U.S. federal income tax purposes
as one integrated transaction qualifying as an exchange under the provisions of
Section 351 of the Code in which the shareholders of the Company transfer
Company Common Stock in exchange for ATX stock.
ARTICLE II
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
2.1 Directors of the Surviving Corporation. The directors of
MergerCo immediately prior to the Effective Time shall be the directors of the
Surviving Corporation immediately after the Effective Time 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 Bylaws of the Surviving Corporation. The Company will use
reasonable efforts to cause any director who is a designee of the Company on the
Board of Directors of any Company Subsidiary to resign as of the Effective Time.
3
<PAGE> 10
2.2 Officers of the Surviving Corporation. The officers of the
Company immediately prior to the Effective Time shall be the officers of the
Surviving Corporation immediately after the Effective Time 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 Bylaws of the Surviving Corporation.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
3.1 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
Company Common Stock or any shares of capital stock of MergerCo:
(a) Each issued and outstanding share of Company Common
Stock held by the Company as a treasury share or held by any direct or indirect
Company Subsidiary and each issued and outstanding share of Company Common Stock
owned by Parent, MergerCo or any other direct or indirect Parent Subsidiary
immediately prior to the Effective Time, shall be canceled and retired and cease
to exist without any conversion thereof and no payment or distribution shall be
made with respect thereto.
(b) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time, other than those shares
referred to in Section 3.1(a), shall be canceled and shall be converted
automatically into and represent the right to receive: (i) an amount equal to
$3.00, net to the holder in cash, without any interest thereon (plus any cash in
lieu of fractional shares as described in Section 4.1(e), the "Cash
Consideration") and (ii) that number of fully paid and nonassessable shares of
Parent Common Stock equal to $14.00 divided by the Base Stock Price (as defined
below) (the "Exchange Ratio") (rounded to the nearest thousandth and subject to
adjustment, as provided below, and subject to cash in lieu of fractional shares
of Parent Common Stock, if any, pursuant to Section 4.1(e), the "Stock
Consideration" and together with the Cash Consideration, the "Merger
Consideration").
(c) The Exchange Ratio shall be adjusted as follows:
(i) if the Average Parent Common Stock Price is
greater than the Collar Percentage multiplied by the Base Stock Price
(such product being the "Ceiling Stock Price"), then the Exchange Ratio
shall be adjusted such that the aggregate value (based on the Average
Parent Common Stock Price) of the Stock Consideration will be equal to
the value the Stock Consideration would represent if the Average Parent
Common Stock Price were equal to the Ceiling Stock Price and there were
no adjustments to the Exchange Ratio as contemplated in this Section
3.1. The Collar Percentage shall be equal to 119%, subject to the
following adjustments: If (1) the Closing has not occurred on or prior
to July 15, 2000, (2) subsequent to the date of
4
<PAGE> 11
this Agreement, Parent has engaged in a transaction (other than
transactions contemplated by this Agreement or any transaction which
would result in a Base Adjustment (as defined below)) (a "Parent
Transaction") that would (x) require the approval of the stockholders of
Parent or, (y) require Parent to include the information relating to
such transaction in the pro forma financial statements (the "Pro
Formas") that are required to be contained in the Registration Statement
or (z) require Parent to amend or restate the Pro Formas in any material
manner, and (3) all conditions to Closing have been satisfied (or waived
by the party entitled to waive such condition) or are capable of being
satisfied on such date with reasonable best efforts, other than the
conditions set forth in Sections 9.1(a) and 9.1(d) and the failure of
either such condition to be satisfied is the result of a Parent
Transaction, then, commencing on the later to occur of (i) July 16, 2000
and (ii) the first business day after which the circumstances set forth
in clause (3) are present (such later date being the "Trigger Day") the
Collar Percentage shall be increased as follows: 2.5 percentage points
on the Trigger Day, and an additional five percentage points per each 31
day period (a "Monthly Period") (on a pro rata basis, based on the
actual number of elapsed days in such Monthly Period at the Closing
Date) beginning on the sixteenth calendar day following the Trigger Day;
(ii) if the Average Parent Common Stock Price is
equal to or greater than 69% of the Base Stock Price and less than 86%
of the Base Stock Price (86% of the Base Stock Price being the "Floor
Stock Price"), then the Exchange Ratio shall be adjusted such that the
aggregate value (based on the Average Parent Common Stock Price) of the
Stock Consideration will be equal to the value the Stock Consideration
would represent if the Average Parent Common Stock Price were equal to
the Floor Stock Price and there were no adjustments to the Exchange
Ratio as contemplated in this Section 3.1; and
(iii) subject to the provisions of Section 10.1(i), if
the Average Parent Common Stock Price is less than 69% of the Base Stock
Price, then the Exchange Ratio will equal that number that it would be
set to in clause (ii) above if the Average Parent Common Stock Price
were equal to 69% of the Base Stock Price.
For purposes of this Agreement, the "Average Parent Common Stock Price"
means the volume weighted average trading price of Parent Common Stock for ten
randomly selected trading days out of the twenty (20) consecutive trading days
ending with the last trading day prior to the Closing Date. The "Base Stock
Price" shall be equal to $47.875, subject to the following "Base Adjustments":
(i) if, after the date of this Agreement and on or prior to the Closing Date the
outstanding shares of Parent Common Stock shall be changed into a different
number of shares by reason of any reclassification, recapitalization, stock
split, reverse stock split, combination or exchange of shares, or any dividend
payable in Parent Common Stock shall be declared thereon with a record date
within such period, or any similar event shall occur, the Base Stock Price shall
be adjusted accordingly to provide to the shareholders of the Company the same
economic effect as contemplated by this Agreement absent such reclassification,
recapitalization, stock split, reverse stock split, combination, exchange,
dividend or similar event; and (ii) if, after the date of this
5
<PAGE> 12
Agreement and on or prior to the Closing Date, Parent shall distribute to all
holders of Parent Common Stock shares of capital stock of Parent other than
Parent Common Stock, evidences of indebtedness or other assets (other than cash
dividends out of current or retained earnings), or shall distribute to
substantially all holders of Common Stock rights or warrants to subscribe for
securities (other than those referred to in subsection (i) above), then in each
such case the Base Stock Price shall be multiplied by a fraction of which the
numerator shall be the Current Market Price (as defined below) of the Parent
Common Stock on the record date less the then fair market value (as determined
in good faith by the Board of Directors of Parent (the "Parent Board"), whose
determination shall be conclusive evidence of such fair market value (absent
manifest error or bad faith) and described in a board resolution) of the portion
of the assets so distributed or of such subscription rights or warrants
applicable to one share of Parent Common Stock and of which the denominator
shall be the Current Market Price of the Parent Common Stock. The "Current
Market Price" shall mean the volume weighted average trading price of Parent
Common Stock for the ten randomly selected trading days out of the prior twenty
(20) consecutive trading days. Parent may only effect a distribution described
under (ii) above, if such distribution does not include operating assets that
are required to maintain the current operating businesses of CoreComm, Inc. (a
subsidiary of Parent) and the distribution of such operating assets would not
have a material adverse effect on the current operating businesses of CoreComm,
Inc., other than the LMDS licenses and related assets.
(d) If at any time prior to Closing, either the written
opinion of counsel required to be received by the Company pursuant to Section
9.2(e) or the written opinion required to be received by Parent pursuant to
Section 9.3(g) is not reasonably expected to be delivered in a form acceptable
to the Company and Parent because less than 80% of the value of the Merger
Consideration will be Stock Consideration (determined as of the Closing Date)
and all other conditions to Closing set forth in Article IX have been satisfied
(or waived by the party entitled to make such condition), then the Merger
Consideration shall be adjusted by increasing the Stock Consideration and
decreasing the Cash Consideration so that the Stock Consideration shall
constitute 80% of the value of the Merger Consideration (determined as of the
Closing Date) provided, that, after such adjustment, the Merger qualifies as a
reorganization under the provisions of Section 368(a)(2)(E) of the Code.
(e) Each share of common stock, par value $.01 per share, of
MergerCo (the "MergerCo Common Stock") issued and outstanding immediately prior
to the Effective Time shall be converted into one validly issued, fully paid and
non-assessable share of common stock, par value $.01 per share, of the Surviving
Corporation (the "Surviving Corporation Common Stock"), certificates for which
shall be issued to the stockholders of MergerCo on a pro rata basis in
accordance with their respective shares of MergerCo upon surrender to the
Surviving Corporation of such stockholders' certificates formerly representing
such shares of MergerCo Common Stock.
(f) All shares of Company Common Stock, when converted as
provided in Section 3.1(b), shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
Certificate previously evidencing such shares shall thereafter represent only
the right to receive the Merger Consideration and cash in lieu of fractional
shares of Parent Common Stock in accordance with Sections 3.1(b) and 4.1(e) and
6
<PAGE> 13
any distribution or dividend under Section 4.1(c). The holders of Certificates
previously evidencing shares of Company Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to the
Company Common Stock except as otherwise provided herein or by law and, upon the
surrender of Certificates in accordance with the provisions of Article III
hereof, shall only represent the right to receive for their shares of Company
Common Stock the Merger Consideration and cash in lieu of fractional shares of
Parent Common Stock in accordance with Sections 3.1(b) and 4.1(e) and any
distribution or dividend under Section 4.1(c) in each case without interest.
3.2 Company Stock Options and Related Matters.
(a) Each option (collectively, the "Company Options")
granted under the Company's Amended and Restated 1998 Stock Option and Incentive
Plan (the "Company Stock Option Plan"), which is outstanding (whether or not
then exercisable) as of immediately prior to the Effective Time and which has
not been exercised or canceled prior thereto, shall, at the Effective Time, be
assumed by Parent, subject to the provisions of this Section 3.2 (the "Assumed
Options"). The Assumed Options shall not terminate in connection with the Merger
and shall continue to have, and be subject to, the same terms and conditions as
set forth in the Company Stock Option Plan and agreements (as in effect
immediately prior to the Effective Time) pursuant to which the Company Options
were granted, provided that (i) all references to the Company shall be deemed to
be references to Parent and all references to shares of Company Common Stock
shall be deemed to be references to shares of Parent Common Stock, (ii) each
Company Option shall be exercisable for that number of whole shares of Parent
Common Stock equal to the product of the number of shares of Company Common
Stock covered by such Company Option immediately prior to the Effective Time
multiplied by the Option Exchange Ratio (as defined below) and rounded to the
nearest whole number of shares of Parent Common Stock and (iii) the exercise
price per share of Company Common Stock under such Company Option shall be equal
to the exercise price per share of Company Common Stock under the Company Option
divided by the Option Exchange Ratio and rounded to the nearest cent. Parent
shall (A) reserve for issuance the number of shares of Parent Common Stock that
will become issuable upon the exercise of such Assumed Options pursuant to this
Section 3.2, (B) promptly after the Effective Time issue to each holder of a
Company Option a document evidencing the assumption by Parent of the Company's
obligations with respect thereto under this Section 3.2, and (C) promptly after
the Effective Time, cause to be filed a registration statement on an appropriate
form under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the Company Stock Option Plans then in effect and covering the
shares of Parent Common Stock issuable upon exercise of the Assumed Options. As
used in this Section 3.2, "Option Exchange Ratio" means the sum of (i) the
Exchange Ratio (as it may be adjusted) and (ii) the quotient obtained by
dividing the per share Cash Consideration by the Average Parent Common Stock
Price.
(b) The adjustments provided in this Section 3.2 with
respect to any Company Options that are "incentive stock options" as defined in
Section 422 of the Code, shall be and are intended to be effected in a manner
which is consistent with Section 424(a) of the Code.
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(c) The parties to this Agreement shall take all reasonable
action required to exempt under SEC Rule 16(b)-3 the treatment of options
contemplated hereby, including, if necessary or appropriate, obtaining
approvals, by each party's Board of Directors, of the type described in a
pertinent SEC no-action letter dated January 12, 1999.
ARTICLE IV
PAYMENT OF SHARES
4.1 Payment for Shares of Company Common Stock.
(a) From and after the Effective Time, such bank or trust
company designated by Parent, and reasonably acceptable to the Company, shall
act as exchange agent (the "Exchange Agent"). At or prior to the Effective Time,
MergerCo shall deposit, or MergerCo shall otherwise take all steps necessary to
cause to be deposited, with the Exchange Agent the aggregate Merger
Consideration and the cash in lieu of fractional shares of Parent Common Stock
(such aggregate Merger Consideration and cash in lieu of shares of Parent Common
Stock together with any dividends or distributions with respect thereto to which
the holders of Certificates may be entitled pursuant to Section 4.1(c) being
hereinafter referred to as the "Exchange Fund") to which holders of shares of
Company Common Stock shall be entitled pursuant to Section 3.1.
(b) Promptly after the Effective Time, Parent shall cause
the Exchange Agent to mail to each holder of record of a Certificate or
Certificates other than the Company, Parent, MergerCo or any Parent Subsidiary
(i) a letter of transmittal which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Parent may reasonably specify and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for the Merger
Consideration and cash in lieu of fractional shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor (x) a certificate representing the number of whole
shares of Parent Common Stock representing the Stock Consideration to which such
holder shall be entitled, (y) a check representing the amount of the Cash
Consideration to which such holder shall be entitled and (z) a check
representing the amount of cash in lieu of fractional shares of Parent Common
Stock, if any, plus the amount of any dividends (other than stock dividends), or
distributions, if any, pursuant to paragraph (c) below, in the case of (y) and
(z), after giving effect to any required withholding tax, and the Certificate so
surrendered shall forthwith be canceled. No interest will be paid or accrued on
the Cash Consideration or on cash payable in lieu of fractional shares or on the
dividend or distribution, if any, payable to holders of Certificates pursuant to
this Section 4.1. In the event of a transfer of ownership of Company Common
Stock which is not registered in the transfer records of the Company, a
Certificate representing the proper number of shares of Parent Common Stock,
together with checks for the Cash Consideration to which such holder shall be
entitled and for any cash to be paid in lieu of fractional shares of Parent
Common
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Stock plus, to the extent applicable, the amount of any dividend or
distribution, if any, payable pursuant to paragraph (c) below, may be issued and
paid to such a transferee if the Certificate representing shares of such Company
Common Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
surrendered Certificate is registered, it shall be a condition of such exchange
that the person requesting such exchange shall pay any transfer or other taxes
required by reason of the issuance of certificates for shares of Parent Common
Stock in a name other than that of the registered holder of the surrendered
Certificate, or shall establish to the satisfaction of Parent or the Exchange
Agent that such tax has been paid or is not applicable.
(c) Notwithstanding any other provisions of this Agreement,
no dividends or other distributions on Parent Common Stock shall be paid with
respect to any shares of Company Common Stock represented by a Certificate until
such Certificate is surrendered for exchange as provided herein; provided,
however, that subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
payable with respect to such whole shares of Parent Common Stock and not paid,
less the amount of any withholding taxes which may be required thereon, and (ii)
at the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a payment
date subsequent to surrender payable with respect to such whole shares of Parent
Common Stock, less the amount of any withholding taxes which may be required
thereon.
(d) At and after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for the Merger Consideration
and cash in lieu of fractional shares, if any, in accordance with this Section
4.1 (plus dividends and distributions to the extent set forth in Section 4.1(c),
if any).
(e) No certificates or scrip representing fractional shares
of Parent Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interest will not entitle its owner to
vote, to receive dividends or to any other rights of a stockholder of Parent. In
lieu of the issuance of any fractional shares of Parent Common Stock pursuant to
Section 3.1(b), the Exchange Agent shall pay to each holder of shares of Company
Common Stock exchanged pursuant to the Merger who are entitled to receive a
fraction of a share of Parent Common Stock (after taking into account all
Certificates delivered by such holder) in accordance with the provisions of this
Article IV, an amount in cash equal to the product obtained by multiplying (A)
the fractional shares of Parent Common Stock to which such holder is entitled
(after taking into account all shares of Company Common Stock held at the
Effective Time) by (B) the closing price for a share of
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<PAGE> 16
Parent Common Stock on NASDAQ on the first business day immediately following
the Effective Time.
(f) Any portion of the Exchange Fund (including the proceeds
of any investments thereof and any shares of Parent Common Stock) that remains
unclaimed by the former stockholders of the Company one year after the Effective
Time shall be delivered to the Surviving Corporation. Any former stockholders of
the Company who have not theretofore complied with this Article IV shall
thereafter look only to the Surviving Corporation for payment of their Merger
Consideration and cash in lieu of fractional shares (plus dividends and
distributions to the extent set forth in Section 4.1(c), if any), as determined
pursuant to this Agreement, without any interest thereon. None of Parent,
MergerCo, the Company, the Exchange Agent or any other person shall be liable to
any former holder of shares of Company Common Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws. If any Certificates shall not have been surrendered
prior to five years after the Effective Time (or immediately prior to such
earlier date on which any Merger Consideration in respect of such Certificate
would otherwise escheat to or become the property of any Governmental Entity (as
defined herein)), any amounts payable in respect of such Certificate shall, to
the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interests of any person previously
entitled to those amounts. In the event 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 or the Surviving Corporation will issue and pay in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration and cash in
lieu of fractional shares (plus, to the extent applicable, dividends and
distributions payable pursuant to Section 4.1(c)) in each case without interest.
(g) Each of the Surviving Corporation and Parent shall be
entitled to deduct and withhold from any amounts otherwise payable pursuant to
this Agreement to any holder of a Certificate such amounts as it is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provisions of Law. To the extent that amounts are so withheld by the
Surviving Corporation or Parent, as the case may be, such withheld amounts shall
be treated for purposes of this Agreement as having been paid to the holder of a
Certificate in respect to which such deduction and withholding was made by the
Surviving Corporation or Parent, as the case may be.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure letter delivered at or prior to
the execution hereof to Parent, which shall refer to the relevant Sections of
this Agreement (the "Company Disclosure Schedule"), the Company represents and
warrants to Parent and MergerCo as follows:
5.1 Existence; Good Standing; Authority; Compliance With Law.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Except as
set forth in Section 5.1 of the Company Disclosure Schedule, the Company is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of any other state of the United States in which the
character of the properties owned, leased or operated by it therein or in which
the transaction of its business makes such qualification or licensing necessary,
except where the failure to be so licensed or qualified would not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
the business, assets, properties, results of operations or financial condition
of the Company and the Company Subsidiaries (as defined herein) taken as a whole
(a "Company Material Adverse Effect"). The Company has all requisite corporate
power and authority to own, operate, lease and encumber its properties and carry
on its business as now conducted.
(b) Each of the Company Subsidiaries is a corporation,
partnership or limited liability company (or similar entity or association in
the case of those Company Subsidiaries organized and existing other than under
the laws of a state of the United States) duly incorporated or organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has the corporate or other power and authority to
own its properties and to carry on its business as it is now being conducted,
and is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the character of the properties owned, leased or operated
by it therein or in which the transaction of its business makes such
qualification or licensing necessary, except as set forth in Section 5.1(b) of
the Company Disclosure Schedule and except for jurisdictions in which such
failures to be so qualified or to be in good standing would not, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
(c) Neither the Company nor any of the Company Subsidiaries
is in violation of any order of any court, Governmental Entity or arbitration
board or tribunal, or any domestic law, statute, order, judgment, decree,
ordinance, rule or regulation ("Law"), applicable to the Company or any Company
Subsidiary or by which any of their respective properties or assets is bound or
affected, which violations would, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect.
(d) The Company and the Company Subsidiaries have obtained
all franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions,
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consents, waivers, rights, certificates, approvals and orders of, and
registrations required to be made with, any United States (federal, state or
local) government, or governmental, regulatory or administrative authority,
agency or commission, court or arbitrator of competent jurisdiction or stock
exchange (each of the foregoing, a "Governmental Entity") that are material to
its business as it is now being or is intended to be conducted (the "Company
Permits"), except where failure to obtain any such Company Permit would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. The Company or one or more of the Company Subsidiaries
is in possession of all of the Company Permits, no material violations are or
have been recorded in respect of any of the Company Permits and no suspension or
cancellation of any of the Company Permits is pending or, to the knowledge of
the Company, threatened that has resulted or would be, individually or in the
aggregate, reasonably expected to result in a Company Material Adverse Effect.
Except for such defaults or violations that would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect, all
of the Company Permits are in full force and effect and neither the Company nor
any of its Subsidiaries is, or has received notice alleging that it is, in
conflict with, or in default or violation of, or, with the giving of notice or
lapse of time or both, would be in conflict with, or in default or violation of,
(i) any Law applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected
by or (ii) any of the Company Permits.
(e) The copies of the Company certificate of incorporation
and by-laws, each as amended through the date of this Agreement that are
incorporated by reference in, as exhibits to the Company's registration
statement on Form S-8 dated August 12, 1999 and all comparable corporate
organizational documents of the Company Subsidiaries made available to Parent by
the Company are complete and correct copies of those documents. All such
corporate organizational documents of the Company and the Company Subsidiaries
are listed on Section 5.1(e) of the Company Disclosure Schedule. Such
certificate of incorporation and by-laws and all comparable organizational
documents of the Company Subsidiaries are in full force and effect. The Company
is not in violation of any of the provisions of such certificate of
incorporation or by-laws.
(f) All Company Permits issued by a state public utilities
commission or a similar state regulatory body ("PUC") or the Federal
Communications Commission ("FCC"), or a municipal authority used in conjunction
with Company's provision of telecommunications services (collectively, the
"Communications Permits") are listed in Section 5.1(f) of the Company Disclosure
Schedule. Each of the Communications Permits was duly issued and is valid and in
full force and effect and has not been modified, canceled, revoked, or
conditioned in any adverse manner except for such modifications, cancellations,
revocations or conditions that would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. None of the
Communications Permits has been sold, conveyed, pledged, assigned or transferred
to any other party, and no other party has any present or future right to
acquire use of them that would in either case, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
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(g) Except as disclosed in Section 5.1(g) the Company
Disclosure Schedule, the Company has complied with and is in compliance with all
regulations and laws applicable to its operations under the Communications
Permits, except where any such failure would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect. The
Company is in compliance with, and its businesses have operated in compliance
with, the Communications Act of 1934, as amended, FCC regulations, or any
applicable state laws or regulations, and has filed all tariffs, registrations
and reports and paid all required fees, including any renewal applications,
required by the Communications Act of 1934, as amended, or any applicable state
regulations and has complied with the terms of each such tariff or regulation,
except where any such failure would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. There is no
action, suit, investigation or other proceeding pending or, to the Company's
knowledge, threatened against the Company which might adversely affect the
Communications Permits, or the assignment of the Communications Permits to
Parent or MergerCo that would, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. No event has occurred with
respect to the Communications Permits which permits or, after notice or lapse of
time, or both, would permit revocation or termination thereof, or would result
in any impairment of the rights of the holder of the Communications Permits or
the imposition of a forfeiture against the Company or any subsequent holder of
the Communications Permits with respect to the operation of the facilities
authorized thereby that would, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.
(h) The Company has delivered to Parent correct and complete
copies of (a) the Company's Communications Permits and the applications related
thereto together with any pending applications filed by the Company for new or
modified facilities related to the purchased business, and (b) all other Permits
and any tariffs filed by the Company relating to the purchased business, and any
applications for additional or modified Permits to the purchased business,
except for those Communications Permits or other Permits that would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
5.2 Authorization, Validity and Effect of Agreements. The Company
has the requisite power and authority to enter into the transactions and to
execute and deliver this Agreement. The Company Board has unanimously approved
this Agreement, the Merger and the other Transactions and has resolved to
recommend that the holders of Company Common Stock adopt and approve this
Agreement at the stockholders' meeting of the Company to be held in accordance
with the provisions of Section 8.1. In connection with the foregoing, the
Company Board has taken such actions and votes as are necessary on its part to
render the provisions of Section 203 of the DGCL and all other applicable
takeover statutes inapplicable to this Agreement, the Merger, the other
Transactions and the Voting Agreement. Subject only to the approval of this
Agreement by the holders of a majority of the outstanding shares of Company
Common Stock (the "Requisite Company Vote"), the execution by the Company of
this Agreement and the consummation of the Transactions have been duly
authorized by all requisite corporate action on the part of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this
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Agreement or to consummate the Transactions. As of the date hereof, all of the
directors and executive officers of the Company have indicated that they
presently intend to vote all shares of the Company Common Stock which they own
to approve this Agreement and the Transactions at the stockholders' meeting of
the Company to be held in accordance with the provisions of Section 8.1. This
Agreement, assuming due and valid authorization, execution and delivery thereof
by Parent, constitutes a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
5.3 Capitalization.
(a) The authorized capital stock of the Company consists of
50,000,000 shares of Company Common Stock and 5,000,000 shares of preferred
stock, par value $.01 per share, of the Company (the "Company Preferred Stock").
As of the date of this Agreement, (i) 31,650,108 shares of Company Common Stock
were issued and outstanding, (ii) 9,775,688 shares of Company Common Stock have
been authorized and reserved for issuance and are available for grant pursuant
to the Company Stock Option Plan, subject to adjustment on the terms set forth
in the Company Stock Option Plan, (iii) 3,493,467 options were outstanding under
the Company Stock Option Plan, (iv) no shares of Company Preferred Stock were
issued and outstanding, and (v) no shares of Company Common Stock and no shares
of Company Preferred Stock were held in the treasury of the Company. All such
issued and outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. As of the date of this Agreement, no shares of capital stock or voting
securities of the Company were issued, outstanding or reserved for issuance by
the Company or outstanding other than as described above and, since such date,
no shares of capital stock or other voting securities or options in respect
thereof have been issued except upon the exercise of the Company Options
outstanding on such date. The Company has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or which
are convertible into or exercisable for securities having the right to vote)
with the stockholders of the Company on any matter. Except for the Company
Options (all of which have been issued under the Company Stock Option Plan),
there are no existing options, warrants, calls, subscriptions, convertible
securities, redemption rights, or other rights, agreements or commitments to
which the Company is a party or by which the Company is bound relating to the
issued or unissued capital stock of, other equity interests in, or securities
exchangeable for or convertible into capital stock or other equity interests in,
the Company or any Company Subsidiary or any Company Subsidiary which obligate
the Company to issue, transfer or sell any shares of capital stock of the
Company.
(b) Section 5.3 of the Company Disclosure Schedule sets
forth a full list of the Company Options, including the name of the person to
whom such Company Options have been granted, the number of shares subject to
each Company Option, the per share exercise price for each Company Option and
the vesting schedule for each Company Option. Except as set forth in Section 5.3
of the Company Disclosure Schedule, there are no agreements or understandings to
which the Company or any Company Subsidiary is a party
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with respect to the voting of any shares of capital stock of the Company or
which restrict the transfer of any such shares, nor does the Company have
knowledge of any third party agreements or understandings with respect to the
voting of any such shares or which restrict the transfer of any such shares.
Except as set forth in Section 5.3 of the Company Disclosure Schedule, there are
no outstanding contractual obligations of the Company or any Company Subsidiary
to repurchase, redeem or otherwise acquire any shares of capital stock,
partnership interests or any other securities of the Company or any Company
Subsidiary. Except as set forth in Section 5.3 of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary is under any
obligation, contingent or otherwise, by reason of any agreement to register the
offer and sale or resale of any of their securities under the Securities Act.
5.4 Subsidiaries. The Company owns directly or indirectly each of
the outstanding shares of capital stock or other equity interest of each of the
Company Subsidiaries. Each of the outstanding shares of capital stock of each of
the Company Subsidiaries having corporate form is duly authorized, validly
issued, fully paid and nonassessable. Except as set forth in Section 5.4 of the
Company Disclosure Schedule, each of the outstanding shares of capital stock or
other equity interest of each of the Company Subsidiaries is owned, directly or
indirectly, by the Company free and clear of all liens, pledges, security
interests, claims, options, rights of first refusal, agreements, limitations on
the Company or such other Company's voting rights, charges or other encumbrances
(collectively, "Liens"). Section 5.4 of the Company Disclosure Schedule sets
forth: (i) name and jurisdiction of incorporation or organization of each
subsidiary of the Company (the "Company Subsidiaries"); (ii) the authorized
capital stock, share capital or other equity interest, to the extent applicable
of each Company Subsidiary; and (iii) the name of each stockholder or equity
interest holder and the number of issued and outstanding shares of capital
stock, share capital or other equity interest held by it with respect to each
Subsidiary.
5.5 Other Interests. Except as set forth in Section 5.5 of the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary owns
directly or indirectly any interest or investment (whether equity or debt) in
any corporation, partnership, limited liability company, joint venture,
business, trust or other entity (other than investments in short-term investment
securities), other than in any Company Subsidiary.
5.6 No Violation; Consents.
(a) Except as set forth in Section 5.6(a) of the Company
Disclosure Schedule, neither the execution and delivery by the Company of this
Agreement nor consummation by the Company of the Transactions in accordance with
the terms hereof, will conflict with or result in a breach of any provisions of
the Company Certificate or the Company Bylaws or any comparable organizational
documents of any Company Subsidiary. Except as set forth in Section 5.6(a) of
the Company Disclosure Schedule, the execution and delivery by the Company of
this Agreement and consummation by the Company of the Transactions in accordance
with the terms hereof will not violate, or conflict with, or result in (x) a
violation of any Law applicable to the Company or any Company Subsidiary or by
which any property or asset of the Company or any Company Subsidiary is bound or
affected
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or (y) any provision of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result in the
termination or in a right of termination or cancellation of, or accelerate the
performance required by, or result in the creation of any Lien, upon any of the
properties or assets of the Company or the Company Subsidiaries under, or result
in being declared void, voidable or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation (collectively, "Contracts") to which the
Company or any of the Company Subsidiaries is a party, or by which the Company
or any of the Company Subsidiaries or any of their properties is bound, except
in each such case as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. Other than the filings
provided for in Article I of this Agreement, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the Securities Act or applicable state
securities and "Blue Sky" laws, the Communications Act of 1934, as amended, and
any regulations promulgated thereunder (the "Communications Act"), the rules and
regulations of local, state, or foreign PUCs (the "PUC Regulations"), and the
applicable local, state, or foreign laws regulating the telecommunications
industry (the "Utility Laws") (collectively, the "Regulatory Filings") the
execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company and consummation of the
Transactions does not, require any consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Entity, except where
the failure to obtain any such consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority would not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect.
(b) Section 5.6(b) of the Company Disclosure Letter sets
forth a correct and complete list of all material Contracts to which the Company
or any Company Subsidiaries are a party or by which they or their assets or
properties is bound or affected under which consents or waivers are required
prior to consummation of the transactions contemplated by this Agreement and the
Transactions.
5.7 SEC Documents.
(a) The Company has filed all required forms, reports,
exhibits, schedules, statements and other documents with the Securities and
Exchange Commission (the "SEC") since July 21, 1999 (collectively, and including
the Company's registration statement on Form S-1 dated July 20, 1999, the
"Company SEC Reports"), all of which were prepared in accordance with the
applicable requirements of the Exchange Act, the Securities Act and the rules
and regulations promulgated thereunder (the "Securities Laws"). All required
Company SEC Reports have been filed with the SEC and constitute all forms,
reports, exhibits, schedules, statements and other documents required to be
filed by the Company under the Securities Laws since July 21, 1999. As of their
respective dates, the Company SEC Reports, including any financial statements or
schedules included or incorporated therein by reference, (i) complied as to form
in all material respects with the applicable requirements of the Securities Laws
and (ii) did not contain any untrue statement of a
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material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. Each of the consolidated balance
sheets of the Company included in or incorporated by reference into the Company
SEC Reports (including the related notes and schedules) fairly presents the
consolidated results of operations and cash flow of the Company and the Company
Subsidiaries as of its date and each of the consolidated statements of income,
retained earnings and cash flows of the Company included in or incorporated by
reference into the Company SEC Reports (including any related notes and
schedules) fairly presents the results of operations, retained earnings or cash
flows, as the case may be, of the Company and the Company Subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements, to
normal year-end audit adjustments which would not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein and except, in the case of the unaudited statements, as permitted
by Form 10-Q pursuant to Section 13 or 15(d) of the Exchange Act. All of such
balance sheets and statements complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto. No Company Subsidiary is subject to the
periodic reporting requirements of the Exchange Act or is otherwise required to
file any documents with the SEC or any national securities exchange or quotation
service or comparable Governmental Entity.
(b) Except as and to the extent set forth on the
consolidated balance sheet of the Company and the consolidated Company
Subsidiaries as of September 30, 1999 including the related notes, neither the
Company nor any Company Subsidiary has any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) that would be
required to be reflected on a balance sheet or in the related notes prepared in
accordance with generally accepted accounting principles, except for liabilities
or obligations incurred in the ordinary course of business since September 30,
1999 that have not resulted and would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
5.8 Litigation. Except as set forth in Section 5.8 of the Company
Disclosure Schedule, there is no litigation, suit, claim, action or proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any of the Company Subsidiaries, as to which there is a reasonable likelihood of
an adverse determination and which, if adversely determined, would, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect. Neither the Company nor any Company Subsidiary is subject to any
outstanding order, writ, injunction or decree which has resulted or would,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect.
5.9 Absence of Certain Changes. Except as disclosed in the Company
SEC Reports filed with the SEC between September 30, 1999 and the date of this
Agreement or in Section 5.9 of the Company Disclosure Schedule, since September
30, 1999 the Company and the Company Subsidiaries have conducted their
businesses only in the ordinary course of business and there has not been:
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(a) any declaration, setting aside or payment of any
dividend or other distribution with respect to Company Common Stock or any
redemption, purchase or other acquisition of the Company's securities;
(b) any material commitment, contractual obligation
(including, without limitation, any management or franchise agreement, any lease
(capital or otherwise) or any binding letter of intent), borrowing, liability,
guaranty, capital expenditure or transaction (each, a "Commitment") entered into
by the Company or any of the Company Subsidiaries outside the ordinary course of
business except for Commitments for expenses of attorneys, accountants and
investment bankers incurred in connection with the Transactions;
(c) any material change in the Company's accounting
principles, practices or methods;
(d) any damage, destruction or other casualty loss with
respect to any asset or property owned, leased or otherwise used by it or any
Company Subsidiaries, whether or not covered by insurance, which damage,
destruction or loss, individually or in the aggregate, has resulted or would,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect;
(e) any increase in the compensation or benefits or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, the granting of
stock options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any executive officers of the
Company or any Company Subsidiary except in the ordinary course of business
consistent with past practice or except as required by applicable Law or
pursuant to agreements in effect as of September 30, 1999;
(f) (A) any material incurrence or assumption by the Company
or any Company Subsidiary of any indebtedness for borrowed money or (B) any
guarantee, endorsement or other incurrence or assumption of material liability
(whether directly, contingently or otherwise) by the Company or any Company
Subsidiary for the obligations of any other person (other than any wholly-owned
Company Subsidiary), other than in the ordinary course of business consistent
with past practice;
(g) any creation or assumption by the Company or any Company
Subsidiary of any Lien on any material asset of the Company or any Company
Subsidiary, other than in the ordinary course of business consistent with past
practice;
(h) any making of any loan, advance or capital contribution
to or investment in any person by the Company or any Company Subsidiary, other
than in the ordinary course of business consistent with past practice or in an
amount which are not in the aggregate in excess of $100,000;
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(i) (A) any Contract or agreement entered into by the
Company or any Company Subsidiary on or prior to the date hereof relating to any
material acquisition or disposition of any assets or business or (B) any
modification, amendment, assignment or termination of or relinquishment by the
Company or any Company Subsidiary of any rights under any other Contract
(including any insurance policy naming it as a beneficiary or a loss payable
payee) that has resulted or would, individually or in the aggregate, reasonably
be expected to result in a Company Material Adverse Effect other than
transactions, commitments, contracts or agreements in the ordinary course of
business consistent with past practice or those contemplated by this Agreement;
or
(j) the circuits identified in Section 5.19(c) of the
Company Disclosure Schedule have not been materially altered or otherwise
changed in any manner that would, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect.
5.10 Taxes.
(a) Except as set forth in Section 5.10 of the Company
Disclosure Schedule, each of the Company and the Company Subsidiaries (i) has
filed, or will have filed, all Tax Returns (as defined below) required to be
filed by it on or before the Closing Date (taking into account any applicable
extensions) and all such Tax Returns are true, correct and complete in all
material respects, and (ii) has paid, or will have paid, all Taxes (as defined
below) required to be paid by it on or before the Closing Date (whether or not
shown on any Tax Return), except, in each case, where the failure to file such
Tax Returns or pay such Taxes would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. Except as set
forth in Section 5.10 of the Company Disclosure Schedule, the most recent
audited financial statements contained in the Company's Quarterly Report on Form
10-Q for the quarter year ended September 30, 1999 reflect an adequate reserve
for all material Taxes payable by the Company and the Company Subsidiaries for
all taxable periods and portions thereof through the date of such financial
statements in accordance with United States generally accepted in accounting
principles ("GAAP"). To the knowledge of the Company, and except as set forth in
Section 5.10 of the Company Disclosure Schedule, no deficiencies for any Taxes
have been proposed, asserted or assessed against the Company or any of the
Company Subsidiaries, there are no Tax liens on any assets of the Company or of
any of the Company Subsidiaries (other than Liens for current Taxes not yet
due), and no requests for waivers of the time to assess any such Taxes are
pending. Section 5.10 of the Company Disclosure Schedule lists all (A) Tax
sharing allocation or indemnification agreements and (B) agreements for
exemptions with Governmental Entities to which the Company or any of the Company
Subsidiaries is a party.
(b) Except as set forth on Schedule 5.10 of the Company
Disclosure Schedule, neither the Company nor any of the Company Subsidiaries has
been a member of any "affiliated group" (as defined in section 1504(a) of the
Code) other than the affiliated group of which the Company is the "parent" and,
except with respect to any group of which only the Company and/or its
Subsidiaries are members, is not subject to Treas. Reg. Section 1.1502-6 (or any
similar provision under foreign, state or local law) for any period.
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Except as set forth on Schedule 5.10 of the Company Disclosure Schedule, neither
the Company nor any of the Company Subsidiaries has been required to include in
income any adjustment pursuant to Section 481 of the Code (or any similar
provision of state, local or foreign tax law) by reason of a voluntary change in
accounting method initiated by the Company or any of the Company Subsidiaries,
and to the knowledge of the Company the Internal Revenue Service has not
initiated or proposed any such adjustment or change in accounting method. Except
as set forth on Schedule 5.10 of the Company Disclosure Schedule, no closing
agreement that could affect the Taxes of the Company or any of the Company
Subsidiaries for periods ending after the Effective Time pursuant to Section
7121 of the Code (or any predecessor provision) or any similar provision of any
state, local or foreign law has been entered into by or with respect to the
Company or any of the Company Subsidiaries. Except as set forth on Schedule 5.10
of the Company Disclosure Schedule, there is no contract, agreement, plan or
arrangement covering any person that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by the Company or
any of the Company Subsidiaries by reason of Section 162(m) or Section 280G of
the Code and neither the Company nor any of the Company Subsidiaries has made or
expects to make any such payments. Neither the Company nor any of the Company
Subsidiaries is, or has been, a United States real property holding corporation
(as defined in Section 897(c)(2) of the Code) during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code.
(c) For purposes of this Agreement, "Taxes" means all
federal, state, local and foreign income, property, sales, franchise,
employment, excise, use, franchise, capital stock, withholding, payroll, gross
receipts, value added, transfer and gains and other taxes, tariffs or
governmental charges of any nature whatsoever, together with any interest,
penalties or additions to Tax with respect thereto.
(d) For purposes of this Agreement, "Tax Returns" means all
reports, returns, declarations, statements or other information required to be
supplied to a domestic or foreign taxing authority in connection with Taxes.
5.11 Real Property Leases; Properties.
(a) Section 5.11 of the Company Disclosure Schedule is a
true and correct Schedule of all real property leased, subleased, licensed or
occupied or used by the Company or any Company Subsidiary under any agreements,
other than point-of-presence related agreements ("POP Agreements"),
(collectively, the "Leases") to or by the Company or any of the Company
Subsidiaries (collectively, the "Real Property") and lists the dates of and
parties to each such Lease, the dates and parties to each amendment,
modification, supplement to such Lease, the term of such Lease, any extension
and expansion options, and the rent payable thereunder. Neither the Company nor
any Company Subsidiary owns any real property. The Company has delivered to
Parent complete and accurate copies of the Leases (as amended to date).
(b) With respect to each of the Leases, except as would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect:
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(i) each Lease is legal, valid, binding, enforceable
obligation of the Company;
(ii) each Lease will continue to be legal, valid,
binding, enforceable obligation of the Company immediately following the
Closing in accordance with the terms thereof as in effect immediately
prior to the Closing;
(iii) neither the Company nor, to the knowledge of the
Company, any other party, is in material breach or violation of, or
default under, any such Lease, and, to the knowledge of the Company, no
event has occurred, is pending or, is threatened, which, after the
giving of notice, with lapse of time, would constitute a material breach
or default by the Company or, to the knowledge of the Company, any other
party under such Lease nor has any termination event or on condition
occurred under the Leases;
(iv) the Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the
leasehold or subleasehold;
(v) to the knowledge of the Company, there are no
Liens, easement, covenant or other restriction applicable to the Real
Property, except for recorded easements, covenants and other
restrictions which do not materially impair the current uses or the
occupancy by the Company of the property subject thereto;
(vi) neither the Company nor any Company Subsidiary
thereof has any ownership, financial or other interest in the landlord
under any Lease;
(vii) there are no Leases granting to any person or
entity other than the Company or any of the Company Subsidiaries any
right to the possession, use, occupancy or enjoyment of the Real
Property, or any portion thereof;
(viii) there is no underlying mortgage, deed of trust,
lease, grant of term or other estate in or interest affecting any Real
Property which is superior to the interest of the Company and the
Company Subsidiaries, as tenants under the applicable Lease; and
(ix) except for as disclosed in Section 5.11(c) of
the Company Disclosure Schedule or easements, rights-of-way and other
non-monetary encumbrances of a minor nature that do not individually or
in the aggregate (i) interfere in any material respect with, or
materially increase the cost of, the use, occupancy or operation of the
applicable parcel of Real Property as currently used, occupied and
operated or (ii) materially reduce the fair market value of the
applicable parcel of Real Property below the fair market value such
parcel would have had but for such encumbrances, the Real Property is
free and clear of all liens, pledges, mortgages, deeds of trust,
security interests, claims, leases, licenses, charges, options, rights
of first refusal, easements, servitudes, transfer restrictions,
encumbrances,
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restrictive covenants, encroachment or other survey defect or any other
restriction or limitation whatsoever and the Company or one of the
Company Subsidiaries holds the leasehold estate and interest in each
Lease free and clear of all liens, pledges, mortgages, deeds of trust,
security interests, claims, leases, licenses, charges, options, rights
of first refusals, easements, servitudes, transfer restrictions,
encumbrances or any other restriction or limitation whatsoever.
(c) All of the land, buildings, structures and other
improvements used by the Company and the Company Subsidiaries in the conduct of
their businesses are included in the Real Property, except for such land,
buildings, structures and other improvements that would not, in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
(d) Each of the POP Agreements of the Company and the
Company Subsidiaries constitute legal, valid, binding, enforceable obligation of
the Company and will continue to be legal, valid, binding, enforceable
obligation of the Company immediately following the Closing in accordance with
the terms thereof as in effect immediately prior to the Closing, except for
those the absence of which would not in the aggregate reasonably be expected to
have a Company Material Adverse Effect. Neither the Company nor any Company
Subsidiary, nor to the Company's knowledge, any other person, is in violation of
or in default under (nor does there exist any condition which with the passage
of time or the giving of notice would cause such a violation of or default
under) any POP Agreement to which the Company or a Company Subsidiary is a party
or by which it or any of its properties or assets is bound or affected, except
for violations or defaults that have not resulted and would not, in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
(e) Except as set forth in Section 5.11(f) of the Company
Disclosure Schedule, the Company and the Company Subsidiaries own good and
marketable title, free and clear of all Liens, to all of the property and assets
shown on the Company's balance sheet at September 30, 1999 as reflected in the
Company SEC Reports (the "Company Balance Sheet") or acquired after September
30, 1999, except for (A) assets which have been disposed of to nonaffiliated
third parties since September 30, 1999 in the ordinary course of business, (B)
Liens reflected in the Company Balance Sheet, (C) Liens or imperfections of
title which are not, individually or in the aggregate, material in character,
amount or extent and which do not materially detract from the value or
materially interfere with the present or presently contemplated use of the
assets subject thereto or affected thereby, and (D) Liens for current Taxes not
yet due and payable. All of the machinery, equipment and other tangible personal
property and assets owned or used by the Company and the Company Subsidiaries
are, to the Company's knowledge, in good condition and repair, except for
ordinary wear and tear not caused by neglect, and are useable in the ordinary
course of business.
5.12 Intellectual Property.
(a) Section 5.12(a) of the Company Disclosure Letter sets
forth all United States and foreign patents and patent applications, trademark
and service mark registrations
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and applications, Internet domain name registrations and applications, and
copyright registrations and applications owned or licensed by the Company and
material to the business of the Company and the Company Subsidiaries, taken as a
whole, as conducted as of the date hereof, specifying as to each item, as
applicable: (i) the owner of the item; and (ii) the issuance, registration or
application numbers and dates.
(b) Section 5.12(b) of the Company Disclosure Letter sets
forth all material licenses, sublicenses, and other agreements or permissions
("IP Licenses") under which the Company is a licensor or licensee or otherwise
is authorized to use or practice any Intellectual Property. For purposes of this
Agreement, "Intellectual Property" means 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 the Company or any Company Subsidiaries or, as
applicable, Parent or any Parent Subsidiary: (A) 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); (B) 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; (C) copyrights,
including all renewals and extensions, copyright registrations and applications
for registration, and non-registered copyrights; (D) trade secrets, concepts,
ideas, designs, research, processes, procedures, techniques, methods, know-how,
data, mask works, discoveries, inventions, modifications, extensions,
improvements, and other proprietary rights (whether or not patentable or subject
to copyright, mask work, or trade secret protection); and (E) computer software
programs, including all source code, object code, and documentation related
thereto.
(c) Except as set forth in Section 5.12(c) of the Company
Disclosure Schedule, the Company or the Company Subsidiaries are the owner of
free and clear of any Liens, or a licensee under a valid sufficient license for,
all Intellectual Property that is material to the business of the Company and
the Company Subsidiaries conducted as of the date hereof, taken as a whole.
Except as disclosed in the Company SEC Reports or Section 5.12(c) of the Company
Disclosure Schedule, there are no claims pending or, to the Company's knowledge,
threatened, that the Company or any Company Subsidiary is in violation of any
such intellectual property right of any third party or that challenges the
validity, enforceability, ownership, or right to use, sell, or license any
Intellectual Property which would, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect, and, to the Company's
knowledge, no third party is in violation of any intellectual property rights of
the Company or any Company Subsidiary which would, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
(d) The Company and/or one or more of its Subsidiaries owns,
or is licensed or otherwise possesses valid rights to use, all material computer
software programs or applications, including the Company's web-based customer
care and billing system, and other tangible or intangible proprietary
information or materials (the "Software") that are
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used in the business of the Company and the Company Subsidiaries as conducted as
of the date hereof, except for software that is "off the shelf" or
"shrink-wrapped" and except for any such failures to own, be licensed or possess
that would not, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect. In addition to the foregoing, as to the
Company's web-based customer care and billing system, the Company owns all
source code, object code, and documents related thereto, except as would not
reasonably be expected to have a Company Material Adverse Effect. The Software
performs in conformance with its documentation and is fully and freely
transferable to Parent without any third party consents, except for failures to
perform or to be fully and freely transferable that, individually or in the
aggregate, have not resulted and would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on the Company.
5.13 Environmental Matters. The Company and the Company Subsidiaries
are and have been in compliance with all Environmental Laws (as defined below),
except for any noncompliance that would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. As used in
this Agreement, "Environmental Laws" shall mean all federal, state and local
laws, rules, regulations, ordinances and orders that regulate the release of
hazardous substances or other pollutants or contaminants into the environment,
or impose requirements relating to environmental protection, pollution or health
and safety. As used in this Agreement, "Hazardous Materials" means any
"hazardous waste" as defined in either the United States Resource Conservation
and Recovery Act or regulations adopted pursuant to said act, any "hazardous
substances" or "hazardous materials" as defined in the United States
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
and, to the extent not included in the foregoing, any oil or fractions thereof,
pollutants or contaminants. Except as set forth in Section 5.13 of the Company
Disclosure Schedule, there is no administrative or judicial enforcement
proceeding or other claim, demand, order, decree or judgment pending, or to the
knowledge of the Company, threatened against the Company or any Company
Subsidiary under any Environmental Law. Except as set forth in Section 5.13 of
the Company Disclosure Schedule, neither the Company nor any Subsidiary or, to
the knowledge of the Company, any legal predecessor of the Company or any
Subsidiary, has received any written notice that it is potentially responsible
under any Environmental Law for response costs or natural resource damages, as
those terms are
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defined under the Environmental Laws, at any location and neither the Company
nor any Subsidiary has transported or disposed of, or arranged for any third
party to transport or dispose of, any Hazardous Materials at any location
included on the National Priorities List, as defined under CERCLA or any
location proposed for inclusion on that list or at any location on any analogous
state list. Except as set forth in Section 5.13 of the Company Disclosure
Schedule, (i) the Company has no knowledge of any release on the real property
owned or leased by the Company or any Company Subsidiary or predecessor entity
of Hazardous Materials in a manner that could result in an order to which the
Company or any Company Subsidiary is subject to perform a response action or in
material liability to the Company or any Company Subsidiary under the
Environmental Laws, and (ii) to the Company's knowledge, there is no hazardous
waste treatment, storage or disposal facility, underground storage tank,
landfill, surface impoundment, underground injection well, friable asbestos or
PCB's, as those terms are defined under the Environmental Laws, located at any
of the real property owned or leased by the Company or any Company Subsidiary or
predecessor entity or facilities utilized by the Company or the Company
Subsidiaries in a condition likely to result in material liability to the
Company or any Company Subsidiary under Environmental Laws.
5.14 Employee Benefit Plans.
(a) Section 5.14(a) of the Company Disclosure Schedule sets
forth a list of every Benefit Plan (as hereinafter defined) that is maintained
by the Company or an Affiliate (as hereinafter defined) on the date hereof (each
a "Company Benefit Plan").
(b) Each Company Benefit Plan which has been intended to
qualify under Section 401(a) of the Code, has received a favorable determination
or approval letter from the Internal Revenue Service ("IRS") regarding its
qualification under such section, its related trust has been determined to be
exempt from taxation under Section 501(a) of the Code, and nothing has occurred
since the date of such letter that has or is likely to adversely affect such
qualification or exemption. Each Company Benefit Plan that requires registration
with a government body has been so registered.
(c) With respect to any Company Benefit Plan, there has been
no event in that could subject, directly or indirectly, the Company or any
Affiliate or any Company Benefit Plan to any material liability under ERISA, the
Code or any other law, regulation or governmental order applicable to any
Company Benefit Plan, including, without limitation, Section 406, 409, 502(i),
502(l) or 4069 of ERISA, or Section 4971, 4975 or 4976 of the Code, or under any
agreement, instrument, statute, rule of law or regulation pursuant to or under
which the Company or any Affiliate has agreed to indemnify any person against
liability incurred under, or for a violation or failure to satisfy the
requirement of, any such statute, regulation or order. Except as set forth on
Section 5.14(b) of the Company Disclosure Schedule, there are no actions, liens,
suits or claims pending or, to the knowledge of the Company or any Affiliate,
threatened (other than routine claims for benefits) with respect to any Company
Benefit Plan as to which the Company or any Affiliate has or could reasonably be
expected to have any direct or indirect actual or contingent material liability.
No litigation or governmental administrative proceeding (or investigation) or
other proceeding (other than those relating to routine claims for benefits) is
pending or, to the Company's knowledge, threatened with respect to any such
Company Benefit Plan.
(d) Neither the Company nor any Affiliate maintains or has
any obligation to contribute to, or has within the preceding six years
maintained or contributed to, or has had during such period the obligation to
maintain or contribute to, or may have any liability with respect to, any
Company Benefit Plan subject to Title IV of ERISA, Section 412 of the Code, any
Multiemployer Plan or any "multiple employer plan" within the meaning of the
Code or ERISA or the regulations promulgated thereunder.
(e) Except as provided in Section 5.14(c) of the Disclosure
Schedule, neither the Company nor any Affiliate is a party to any plan or
agreement that will, as a result of the consummation of the transactions
contemplated by this Agreement or otherwise,
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(i) result in the acceleration of the time for payment or vesting of, or
increase the amount of compensation due to any employee, former employee,
consultant or independent contractor, (ii) reasonablely be expected to result in
any "excess parachute payment" under Section 280G of the Code or any payment
which is non-deductible under Section 162(m) of the Code. The consummation of
the transactions contemplated by this Agreement will not entitle any employee or
former employee to severance pay or similar payment which payments, individually
or in the aggregate, would be material to the Company and the Company
Subsidiaries.
(f) Neither the Company nor any Affiliate has an announced
plan or legally binding commitment to create any additional Company Benefit
Plans or to amend or modify any existing Company Benefit Plan, other than
amendments to comply with law.
(g) Neither the Company nor any Affiliate has any material
liability, whether absolute or contingent, direct or indirect, including any
obligations under any Company Benefit Plan, with respect to any
misclassification of a person as an independent contractor rather than as an
employee or with respect to any employees "leased" from any employer.
(h) Neither the Company nor any Affiliate has any 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 or state health
coverage continuation law and the costs of which are fully paid by such former
employees.
(i) Each Company Benefit Plan which is a "group health plan"
(as defined in Section 601 of ERISA) is in material compliance with the
provisions of COBRA, HIPAA and any other applicable federal, state or local law.
(j) With respect to each Company Benefit Plan, complete and
correct copies of the following documents (if applicable to such Company Benefit
Plan) have previously been delivered to Parent: (i) all documents embodying or
governing such Company Benefit Plan, and any funding medium for such Company
Benefit Plan (including, without limitation, trust agreements) as they may have
been amended to the date hereof; (ii) the most recent IRS determination or
approval letter with respect to such Company Benefit Plan under Code Section
401(a), and any applications for determination or approval subsequently filed
with the IRS; (iii) the current summary plan description for such Company
Benefit Plan (or other descriptions of such Company Benefit Plan provided to
employees) and all modifications thereto; and for the three most recent years,
(w) the Forms 5500, with all applicable schedules and accountants' opinions
attached thereto; (x) audited financial statements; (y) actuarial valuation
reports, if any; and (z) attorney's response to an auditor's request for
information.
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(k) For purposes of Sections 5.14 and 6.14 of this
Agreement:
(i) "Benefit Plan" means any 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 ERISA;
(ii) An entity "maintains" a Benefit Plan if such
entity sponsors, contributes to, or provides benefits under or through
such Benefit Plan, or has any obligation (by agreement or under
applicable law) to contribute to, or has any direct or indirect
liability, whether contingent or otherwise, with respect to any such
Benefit Plan, or if such Benefit Plan provides benefits to or otherwise
covers employees of such entity (or their spouses, dependents, or
beneficiaries);
(iii) An entity is an "Affiliate" of another entity if
it would have ever been considered a single employer with such other
entity under ERISA Section 4001(b) or part of the same "controlled
group" as such other entity for purposes of ERISA Section 302(d)(8)(C)
and Sections 414(b), (c), (m) or (o) of the Code; and
(iv) "Multiemployer Plan" means an employee pension
or welfare benefit plan to which more than one unaffiliated employer
contributes and which is maintained pursuant to one or more collective
bargaining agreements;
(v) "COBRA" means Section 4980B of the Code and
Section 601 et seq. of ERISA, and regulations thereunder; and
(vi) "HIPAA" means the Health Insurance Portability
and Accountability Act of 1996.
5.15 Labor Matters.
(i) Except as disclosed in Section 5.15 of the
Company Disclosure Schedule, neither the Company nor any Company
Subsidiary is a party to, or bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor
union or labor union organization. There is no unfair labor practice or
labor arbitration proceeding pending or, to the knowledge of the
Company, threatened against the Company or any of the Company
Subsidiaries relating to their business. To the Company's knowledge,
there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of the Company or any of the Company Subsidiaries.
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(ii) Neither the Company nor any Company Subsidiary
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, except for such
violations that would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect.
5.16 No Brokers. Neither the Company nor any of the Company
Subsidiaries has entered into any contract, arrangement or understanding with
any person or firm which may result in the obligation of such entity or Parent
to pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or
consummation of the Transactions, except that the Company has retained Morgan
Stanley Dean Witter ("Morgan Stanley") as its financial advisor in connection
with the Transactions. The Company has delivered to Parent a true and complete
copy of any contract, agreement or understanding entered into with Morgan
Stanley in connection with the Merger or the Transactions. Other than the
foregoing arrangements and Parent's arrangements with Goldman Sachs & Co. and
Albert Schneider, the Company is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the Transactions.
5.17 Opinion of Financial Advisor. The Company has received the
opinion of Morgan Stanley to the effect that, as of the date hereof, the Merger
Consideration is fair to the holders of Company Common Stock from a financial
point of view. The Company has delivered or will promptly after receipt of such
written opinion, deliver a signed copy of that opinion to Parent.
5.18 Non-Competition Agreements. Except as set forth in Section 5.18
of the Company Disclosure Letter, neither the Company nor any Company Subsidiary
is a party to any agreement which purports to restrict or prohibit in any
material respect the Company and the Company Subsidiaries collectively from,
directly or indirectly, engaging in any business involving Internet service
access or telecommunications currently engaged in by the Company, any Company
Subsidiary or any other persons affiliated with the Company. None of the
Company's officers, directors or key employees is a party to any agreement
which, by virtue of such person's relationship with the Company, restricts in
any material respect the Company or any Company Subsidiary or affiliate of
either of them from, directly or indirectly, engaging in any of the businesses
described above.
5.19 Material Contracts.
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(a) Schedule 5.19(a) of the Company Disclosure Letter lists
or describes, and the Company has been furnished copies of all material
contracts or arrangements to which the Company or any Company Subsidiary is a
party or to which its assets, property or business is bound or subject (other
than contracts between the Company and any Company Subsidiary), which involve
aggregate payments by or to the Company or any Company Subsidiary (including,
without limitation, payments pursuant to a guaranty of any obligations of any
Company Subsidiary or third party) of $100,000 or more, whether or not made in
the ordinary course of business (the "Company Contracts").
(b) Except for the Company Contracts or as set forth in
Section 5.19(b) of the Company Disclosure Schedule, there is no Contract that is
material to the business, results of operations, assets, properties or financial
condition of the Company and the Company Subsidiaries taken as a whole. Each of
the Company Contracts constitutes a valid and legally binding obligation of the
Company or such Company Subsidiary and, to the knowledge of the Company, of the
other parties thereto, enforceable in accordance with its terms, and is in full
force and effect, except to the extent the failure to be so valid, binding or
enforceable, has not and would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect. Neither the Company nor
any Company Subsidiary, nor to the Company's knowledge, any other person, is in
violation of or in default under (nor does there exist any condition which with
the passage of time or the giving of notice would cause such a violation of or
default under) any Contract to which the Company or a Company Subsidiary is a
party or by which it or any of its properties or assets is bound or affected,
except for violations or defaults that have not resulted and would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. The Company has satisfied all volume commitment
requirements under the applicable Company Contracts to allow for the most
favorable pricing structure to be provided to the Company under such Company
Contracts. Set forth in Schedule 5.19(b), the Company Disclosure Letter is a
description of any material changes to the amount and terms of the indebtedness
of the Company and the consolidated Company Subsidiaries as described in the
notes to the financial statements set forth as incorporated by reference in the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1999. The aggregate amount of indebtedness of the Company and the Company
Subsidiaries which is outstanding under the Amended and Restated Credit
Agreement, dated as of July 26, 1999, among Voyager Information, Inc., Fleet
National Bank, as agent and certain lenders, is no more than $23,750,000.
(c) Section 5.19(c) of the Company Disclosure Schedule sets
forth a true and complete list as of February 1, 2000 of all circuit and related
agreements and any amendments, supplements or other modifications thereto except
for those circuit and related agreements that would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
5.20 Certain Agreements. Except as set forth in Section 5.20 of the
Company Disclosure Letter, neither the Company nor any of the Company
Subsidiaries is a party to any oral or written (i) agreement with any executive
officer or other key employee of the Company or Company Subsidiary the benefits
of which are contingent, or the terms of which
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are materially altered, upon the occurrence of a transaction involving the
Company of the nature contemplated by this Agreement, or agreement with respect
to any executive officer of the Company providing any term of employment or
compensation guarantee (x) extending for a period longer than one year after the
Effective Time or (y) for the payment of in excess of $100,000 or (ii) plan or
arrangements, including any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
5.21 Subscribers. The Company has at least 325,000 subscribers as
calculated in accordance with the Company's customary practices. As used herein,
the term "Subscriber" means a customer of the Company or a Company Subsidiary
who (i) is currently connected to and receiving Internet access service from the
system and (ii) is being charged and is paying for such service. Notwithstanding
the foregoing, it shall not be deemed to be a reduction in the number of
Subscribers if a Subscriber continues to remain as a customer of the Company,
even though such Subscriber has been aggregated with one or more other
Subscribers into one account.
5.22 Information. None of the information to be supplied by the
Company for inclusion or incorporation by reference in the Proxy Statement or
the Form S-4 will, in the case of the Form S-4, at the time it becomes effective
and at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated in that Form S-4 or
necessary to make the statements in that Form S-4 not misleading, or, in the
case of the Proxy Statement or any amendments of or supplements to the Proxy
Statement, at the time of the mailing of the Proxy Statement and any amendments
of or supplements to the Proxy Statement and at the time of the Company
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated in that Proxy Statement or
necessary in order to make the statements in that Proxy Statement, in light of
the circumstances under which they are made, not misleading. The Proxy Statement
(except for those portions of the Proxy Statement that relate only to Parent or
Parent Subsidiaries or affiliates of Parent) will comply as to form in all
material respects with the provisions of the Exchange Act.
5.23 Vote Required. The Requisite Company Vote is the only vote of
the holders of any class or series of the Company's capital stock necessary
(under the Company Certificate and Company By-laws, the DGCL, other applicable
Law or otherwise) to approve this Agreement, the Merger or the other
Transactions.
5.24 Definition of the Company's Knowledge. As used in this
Agreement, the phrase "to the knowledge of the Company" or any similar phrase
means the actual (and not the constructive or imputed) knowledge after due
inquiry of Christopher P. Torto, Osvaldo deFaria, Glenn R. Friedly and James
Militello.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the disclosure letter delivered at or prior to
the execution hereof to the Company, which shall refer to the relevant Sections
of this Agreement (the "Parent Disclosure Schedule"), each of Parent and
MergerCo represents and warrants to the Company as follows:
6.1 Existence; Good Standing; Authority; Compliance With Law.
(a) Each of Parent and MergerCo is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Except as set forth in Section 6.1 of Parent
Disclosure Schedule, each of Parent and MergerCo is duly licensed or qualified
to do business as a foreign corporation and is in good standing under the laws
of any other state of the United States in which the character of the properties
owned, leased or operated by it therein or in which the transaction of its
business makes such qualification or licensing necessary, except where the
failure to be so licensed or qualified would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, assets, properties, results of operations or financial condition of
Parent and the Parent Subsidiaries (as defined herein) taken as a whole (a
"Parent Material Adverse Effect"). Each of Parent and MergerCo has all requisite
corporate power and authority to own, operate, lease and encumber its properties
and carry on its business as now conducted.
(b) Each of the Parent Subsidiaries is a corporation,
partnership or limited liability company (or similar entity or association in
the case of those Parent Subsidiaries organized and existing other than under
the laws of a state of the United States) duly incorporated or organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has the corporate or other power and authority to
own its properties and to carry on its business as it is now being conducted,
and is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which character of the properties owned, leased or operated by
it therein or in which the transaction of its business makes such qualification
or licensing necessary, except for jurisdictions in which such failures to be so
qualified or to be in good standing would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect.
(c) Except as set forth in Section 6.1(c) of the Parent
Disclosure Schedule, neither Parent, MergerCo nor any of the Parent Subsidiaries
is in violation of any order of any court, Governmental Entity or arbitration
board or tribunal, or any Law, applicable to Parent, MergerCo or any Parent
Subsidiary or by which any of their respective properties or assets is bound or
affected by which violation would, individually or in the aggregate, reasonably
be expected to have a Parent Material Adverse Effect. Parent, MergerCo and the
Parent Subsidiaries have obtained all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, waivers, rights,
certificates, approvals and orders of, and registrations required to be made
with any Governmental Entity
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that are material to its business as it is now being or is intended to be
conducted (the "Parent Permits"), where the failure to obtain any such Parent
Permits would not, individually or in the aggregate, reasonably be expected to
have a Parent Material Adverse Effect.
(d) The copies of the Parent's Memorandum of Association
("Parent Certificate") and by-laws ("Parent ByLaws"), each as amended through
the date of this Agreement that are incorporated by reference in, as exhibits to
the Parent's Quarterly Report on Form 10-Q for the quarter ended September 30,
1999 and all comparable corporate organizational documents of the Parent
Subsidiary made available to the Company by Parent are complete and correct
copies of those documents. Such Memorandum of Association and by-laws and all
comparable organizational documents of the Parent Subsidiaries are in full force
and effect. The Parent is not in violation of any of the provisions of such
Memorandum of Association or by-laws.
6.2 Authorization, Validity and Effect of Agreements. Each of Parent
and MergerCo has the requisite power and authority to enter into the
Transactions and to execute and deliver this Agreement. The Parent Board has
unanimously approved this Agreement, the Merger and the other Transactions and
has resolved to recommend that the holders of Parent Common Stock adopt and
approve this Agreement at the stockholders' meeting of Parent to be held in
accordance with the provisions of Section 8.1. The Board of Directors of
MergerCo (the "MergerCo Board") and the stockholders of MergerCo have approved
this Agreement and the Transactions. Subject only to the approval of this
Agreement by the holders of a majority of the outstanding shares of Parent
Common Stock (the "Requisite Parent Vote"), the execution by Parent of this
Agreement and the consummation of the Transactions have been duly authorized by
all requisite corporate action on the part of Parent and MergerCo and no other
corporate proceedings on the part of Parent or MergerCo are necessary to
authorize this Agreement or to consummate the Transactions. As of the date
hereof, all of the directors and executive officers of Parent have indicated
that they presently intend to vote all shares of Parent Common Stock which they
own to approve this Agreement and the Transactions at the stockholders' meeting
of Parent to be held in accordance with the provisions of Section 8.1. This
Agreement, assuming due and valid authorization, execution and delivery thereof
by the Company, constitutes a valid and legally binding obligation of Parent and
MergerCo, enforceable against Parent and MergerCo in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
6.3 Capitalization. The authorized capital stock of Parent consists
of 75,000,000 shares of Parent Common Stock and 1,000,000 shares of preferred
stock, par value $.01 per share, of Parent ("Parent Preferred Stock"). As of
March 6, 2000, (i) 39,213,036 shares of Parent Common Stock were issued and
outstanding, (ii) 19,125,000 shares of Parent Common Stock have been authorized
and reserved for issuance and are available for grant pursuant to Parent's stock
option plans (the "Parent Stock Option Plans"), subject to adjustment on the
terms set forth in Parent Stock Option Plans, (iii) 10,511,875 options (the
"Parent Options") were outstanding under Parent Stock Option Plans, (iv) no
shares of Parent Preferred Stock were issued and outstanding, and (v) no shares
of Parent Common Stock and no shares of Parent Preferred Stock were held in the
treasury of
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Parent. As of the date of this Agreement, no shares of capital stock or voting
securities of Parent were issued, outstanding or reserved for issuance by Parent
or outstanding other than as described above and, since such date, no shares of
capital stock or other voting securities or options in respect thereof have been
issued except upon the exercise of the Parent Options outstanding on such date.
The authorized capital stock of MergerCo consists of 1,500 shares of MergerCo
Common Stock, of which 1,500 shares were outstanding as of the date of this
Agreement. All such issued and outstanding shares of capital stock of Parent are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. Parent has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of Parent on any matter. Except as set forth in the Parent SEC
Reports and in Section 6.3 of the Parent Disclosure Schedule, there are no
existing options, warrants, calls, subscriptions, convertible securities,
redemption rights or other rights, agreements or commitments to which Parent is
a party or by which Parent is bound relating to the issued or unissued capital
stock of, other equity interests in, or securities exchangeable for or
convertible into capital stock or other equity interests in, Parent or any
Parent Subsidiary or any Parent Subsidiary which obligate Parent to issue,
transfer or sell any shares of capital stock of Parent, other than the Parent
Options. Except as set forth in Section 6.3 of Parent Disclosure Schedule or in
the Parent SEC Reports, there are no agreements or understandings to which
Parent or any Parent Subsidiary is a party with respect to the voting of any
shares of capital stock of Parent or which restrict the transfer of any such
shares, nor does Parent have knowledge of any third party agreements or
understandings with respect to the voting of any such shares or which restrict
the transfer of any such shares. Except as set forth in Section 6.3 of Parent
Disclosure Schedule or in the Parent SEC Reports, there are no outstanding
contractual obligations of Parent or any Parent Subsidiary to repurchase, redeem
or otherwise acquire any shares of capital stock, partnership interests or any
other securities of Parent or any Parent Subsidiary. Except as set forth in
Section 6.3 of Parent Disclosure Schedule or in the Parent SEC Reports, neither
Parent nor any Parent Subsidiary is under any obligation, contingent or
otherwise, by reason of any agreement to register the offer and sale or resale
of any of their securities under the Securities Act.
6.4 Subsidiaries. Parent owns directly or indirectly each of the
outstanding shares of capital stock or other equity interest of MergerCo and
each of the Parent Subsidiaries. Each of the outstanding shares of capital stock
of MergerCo and each of the Parent Subsidiaries having corporate form is duly
authorized, validly issued, fully paid and nonassessable. Each of the
outstanding shares of capital stock or other equity interest of MergerCo and
each of the Parent Subsidiaries is owned, directly or indirectly, by Parent free
and clear of all Liens. Section 6.4 of Parent Disclosure Schedule sets forth:
(i) the name and jurisdiction of incorporation or organization of each
Subsidiary of Parent ("Parent Subsidiaries") and (ii) the name of each
stockholder or equity interest holder and the number of issued and outstanding
shares of capital stock, share capital or other equity interest held by it with
respect to each Parent Subsidiary.
6.5 Other Interests. Except as set forth in Section 6.5 of Parent
Disclosure Schedule, neither Parent nor any Parent Subsidiary owns directly or
indirectly any interest or
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investment (whether equity or debt) in any corporation, partnership, limited
liability company, joint venture, business, trust or other entity (other than
investments in short-term investment securities), other than in any Parent
Subsidiary.
6.6 No Violation; Consents.
(a) Except as set forth in Section 6.6(a) of Parent
Disclosure Schedule, neither the execution and delivery by Parent of this
Agreement nor consummation by Parent of the Transactions in accordance with the
terms hereof, will conflict with or result in a breach of any provisions of
Parent Certificate or Parent ByLaws or any comparable organizational documents
of any Parent Subsidiary. Except as set forth in Section 6.6(a) of Parent
Disclosure Schedule, the execution and delivery by Parent of this Agreement and
consummation by Parent of the Transactions in accordance with the terms hereof
will not violate, or conflict with, or result in (x) a violation of any Law
applicable to Parent or any Parent Subsidiary or by which any property or asset
of Parent or any Parent Subsidiary is bound or affected or (y) any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination or in a
right of termination or cancellation of, or accelerate the performance required
by, or result in the creation of any Lien upon any of the properties or assets
of Parent or the Parent Subsidiaries under, or result in being declared void,
voidable or without further binding effect, any of the terms, conditions or
provisions of any Contract to which Parent or any of Parent Subsidiaries is a
party, or by which Parent or any of the Parent Subsidiaries or any of their
properties is bound, except as would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect. Other than the
Regulatory Filings, the execution and delivery of this Agreement by Parent does
not, and the performance of this Agreement by Parent and consummation of the
Transactions does not, require any consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Entity, except where
the failure to obtain any such consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority would not, individually or in the aggregate, reasonably be expected to
have a Parent Material Adverse Effect.
(b) Section 6.6(b) of the Parent Disclosure Letter sets
forth a correct and complete list of all material Contracts to which Parent or
any Parent Subsidiaries are a party or by which they or their assets or
properties is or may be bound or affected under which consents or waivers are
required prior to consummation of the transactions contemplated by this
Agreement and the Transactions.
6.7 SEC Documents. Parent has filed all required forms, reports,
exhibits, schedules, statements and other documents with the SEC since September
2, 1998 (collectively, the "Parent SEC Reports"), all of which were prepared in
accordance with the applicable requirements of the Securities Laws. All required
Parent SEC Reports have been filed with the SEC and constitute all forms,
reports, exhibits, schedules, statements and other documents required to be
filed by Parent under the Securities Laws since September 2, 1998. As of their
respective dates, Parent SEC Reports, including any financial statement or
schedules included or incorporated therein by reference (i) complied as to form
in all
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material respects with the applicable requirements of the Securities Laws and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets of Parent included in or
incorporated by reference into Parent SEC Reports (including the related notes
and schedules) fairly presents the consolidated results of operations and cash
flow position of Parent and Parent Subsidiaries as of its date and each of the
consolidated statements of income, retained earnings and cash flows of Parent
included in or incorporated by reference into Parent SEC Reports (including any
related notes and schedules) fairly presents the results of operations, retained
earnings or cash flows, as the case may be, of Parent and Parent Subsidiaries
for the periods set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments which would not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein and except, in the case of the unaudited statements, as permitted
by Form 10-Q pursuant to Section 13 or 15(d) of the Exchange Act. All of such
balance sheets and statements complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto. No Parent Subsidiary is subject to the periodic
reporting requirements of the Exchange Act or is otherwise required to file any
documents with the SEC or any national securities exchange or quotation service
or comparable Governmental Entity.
6.8 Litigation. Except as set forth in Section 6.8 of Parent
Disclosure Schedule and in the Parent SEC Reports, there is no litigation, suit,
claim, action or proceeding pending or, to the knowledge of Parent, threatened
against Parent or any of Parent Subsidiaries, as to which there is a reasonable
likelihood of an adverse determination and which, if adversely determined,
would, individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect. Neither Parent nor any Parent Subsidiary is subject to
any outstanding order, writ, injunction or decree which, individually or in the
aggregate, has resulted or would, individually or in the aggregate, reasonably
be expected to have a Parent Material Adverse Effect.
6.9 Absence of Certain Changes. Except as disclosed in Parent SEC
Reports filed with the SEC between September 30, 1999 and the date of this
Agreement or in Section 6.9 of the Parent Disclosure Schedule, since September
30, 1999 Parent and Parent Subsidiaries have conducted their businesses only in
the ordinary course of business and there has not been:
(a) any declaration, setting aside or payment of any
dividend or other distribution with respect to Parent Common Stock or any
redemption, purchase or other acquisition of Parent's securities;
(b) any Commitment entered into by Parent or any of Parent
Subsidiaries outside the ordinary course of business except for Commitments for
expenses of attorneys, accountants and investment bankers incurred in connection
with the Transactions;
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(c) any material change in Parent's accounting principles,
practices or methods; or
(d) any damage, destruction or other casualty loss with
respect to any asset or property owned, leased or otherwise used by it or any
Parent Subsidiaries, whether or not covered by insurance, which damage,
destruction or loss, individually or in the aggregate, has resulted or would,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect.
6.10 Intellectual Property. Parent or the Parent Subsidiaries are the
owner free and clear of any Liens of, or a licensee under a valid unrestricted
license for, all Intellectual Property which are material to the business of
Parent and the Parent Subsidiaries as currently conducted, taken as a whole.
Except as disclosed in Parent SEC Reports or Section 6.10 of Parent Disclosure
Schedule, there are no claims pending or, to Parent's knowledge, threatened,
that Parent or any Parent Subsidiary is in violation of any such intellectual
property right of any third party or that challenges the validity,
enforceability, ownership, or right to use, sell, or license any Intellectual
Property which would, individually or in the aggregate, reasonably be expected
to have a Parent Material Adverse Effect, and, to Parent's knowledge, no third
party is in violation of any intellectual property rights of Parent or any
Parent Subsidiary which would, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect.
6.11 No Brokers. Neither Parent nor any of Parent Subsidiaries has
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of such entity or the Company to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the Transactions, except that Parent has retained Goldman, Sachs & Co. and
Albert Schneider as its financial advisor in connection with the Transactions.
Other than the foregoing arrangements and the Company's arrangements with Morgan
Stanley, Parent is not aware of any claim for payment of any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or consummation of the Transactions.
6.12 Opinion of Financial Advisor. Parent has received the opinion of
Goldman, Sachs & Co. to the effect that, as of the date hereof, the Merger
Consideration is fair to the holders of Parent Common Stock from a financial
point of view.
6.13 Taxes. Except as set forth in Section 6.13 of the Parent
Disclosure Schedule, each of the Parent and the Parent Subsidiaries (i) has
filed, or will have filed, all Tax Returns required to be filed by it on or
before the Closing Date (taking into account any applicable extensions) and all
such Tax Returns are true, correct and complete in all material respects, and
(ii) has paid, or will have paid, all Taxes required to be paid by it on or
before the Closing Date (whether or not shown on any Tax Return), except, in
each case, where the failure to file such Tax Returns or pay such Taxes would
not, individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect. Except as set forth in Section 6.13 of the Parent
Disclosure Schedule, the most recent unaudited financial
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statements contained in the Parent's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 reflect an adequate reserve for all material
Taxes payable by the Parent and the Parent Subsidiaries for all taxable periods
and portions thereof through the date of such financial statements in accordance
with United States GAAP. To the knowledge of the Parent, and except as set forth
in Section 6.13 of the Parent Disclosure Schedule, no deficiencies for any Taxes
have been proposed, asserted or assessed against the Parent or any of the Parent
Subsidiaries, there are no Tax liens on any assets of the Parent or of any of
the Parent Subsidiaries (other than liens for current Taxes not yet due), and no
requests for waivers of the time to assess any such Taxes are pending. The
transactions described in Section 8.11, including the Reincorporation (as
defined herein), will not result in any material Tax liability to Parent or to
ATX.
6.14 Employee Benefit Plans. Each Parent Benefit Plan which is
intended to be qualified under Section 401(a) of the Code has received a
favorable determination or approval letter from the IRS regarding its
qualification under such section, and neither the Parent nor any Affiliate knows
of any event that has occurred which would preclude qualified status. With
respect each Parent Benefit Plan, there has been no material failure to comply
with any applicable provision of ERISA, the Code or any other law which would
subject the Parent or any Affiliate to liability for any damages, penalty, or
taxes that would, individually or in the aggregate, reasonably be expected to
have a Parent Material Adverse Effect.
6.15 Definition of Parent's Knowledge. As used in this Agreement, the
phrase "to the knowledge of Parent" or any similar phrase means the actual (and
not the constructive or imputed) knowledge after due inquiry of the executive
officers of Parent.
ARTICLE VII
COVENANTS
7.1 No Solicitations.
(a) The Company represents and warrants that it has
terminated, and has caused its subsidiaries and affiliates, and their respective
officers, directors, employees, investment bankers, attorneys, accountants and
other advisors or representatives to terminate, any activities, discussions or
negotiations relating to, or that may be reasonably be expected to lead to, any
Acquisition Proposal (as hereinafter defined) and will promptly request the
return of all confidential information regarding the Company provided to any
third party prior to the date of this Agreement pursuant to the terms of any
confidentiality agreements. From the date hereof until the termination hereof
and except as permitted by the following provisions of this Section 7.1, the
Company shall not, and shall not authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor, attorney,
accountant or other advisor or Representative retained by it to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
non-public information), or take any other action to facilitate, any inquiries
or the making of any proposal that constitutes an Acquisition Proposal or any
inquiries or making of any proposal that constitutes, or may
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reasonably be expected to lead to, an Acquisition Proposal, or (ii) participate
in any activities, discussions or negotiations regarding an Acquisition
Proposal; provided, however, that subject to compliance by the Company with the
provisions of Section 7.1(b), the Company Board may furnish information to, or
enter into discussions or negotiations with, any person that makes an
unsolicited written Acquisition Proposal if, and only to the extent that (A) the
Company Board, after consultation with its outside legal counsel, determines in
good faith that such action is necessary for the Company Board to comply with
its fiduciary duties to the Company's stockholders under applicable law, (B)
such Acquisition Proposal is not subject to any financing contingencies or is,
in the good faith judgment of the Company Board after consultation with a
nationally recognized financial advisor, reasonably capable of being financed,
and is at least as likely to be consummated as is the Merger, (C) the Company
Board determines in good faith that such Acquisition Proposal, based upon such
matters as it deems relevant (including consultation with a nationally
recognized financial advisor) would, if consummated, result in a transaction
more favorable to the Company's stockholders from a financial point of view than
the Merger (any such more favorable Acquisition Proposal being referred to
herein as a "Superior Proposal"), (D) the Company receives from such person an
executed confidentiality agreement in reasonably customary form and (E) at least
three (3) business days prior to taking such action, the Company shall provide
written notice to Parent to the effect that it is taking such action.
(b) Prior to providing any information to or entering into
discussions with any person in connection with an Acquisition Proposal by a
person as set forth in Section 7.1(a), the Company shall notify Parent orally
and in writing of any Acquisition Proposal (including, without limitation, the
material terms and conditions thereof and the identity of the person making it)
or any inquiries indicating that any person is considering making or wishes to
make an Acquisition Proposal, as promptly as practicable (but in no case later
than 24 hours) after its receipt thereof, and shall provide Parent with a copy
of any written Acquisition Proposal or amendments or supplements thereto, and
shall thereafter inform Parent on a prompt basis of (x) any material changes to
the terms and conditions of such Acquisition Proposal, and shall promptly give
Parent a copy of any information delivered to such person that amends or
supplements the Acquisition Proposal and that has not previously been provided
to Parent, and (y) any request by any person for nonpublic information relating
to its or any Company Subsidiaries' properties, books or records.
(c) The Company Board will not withdraw or modify, or
propose to withdraw or modify, in any manner adverse to Parent, its approval or
recommendation of this Agreement or the Merger except in connection with a
Superior Proposal and then only upon or after the termination of this Agreement
pursuant to Section 10.1(c) and payment to Parent of the amounts referred to in
Section 10.2(b).
(d) Nothing contained in this Section 7.1 shall prohibit the
Company from at any time taking and disclosing to its stockholders a position
contemplated by Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act or
making any disclosure required by Rule 14a-9 promulgated under the Exchange Act
if, the Company Board determines, in its good faith reasonable judgment after
consultation with outside legal counsel, that failure to so disclose would be
inconsistent with its obligations under applicable law.
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(e) As used in this Agreement, the term "Acquisition
Proposal" shall mean any proposed or actual (i) merger, consolidation or similar
transaction involving the Company, (ii) sale, lease, exchange, mortgage, pledge,
transfer or other disposition, directly or indirectly, by merger, consolidation,
share exchange or otherwise, of any assets of the Company or the Company
Subsidiaries representing 15% or more of the consolidated assets of the Company
and the Company Subsidiaries, (iii) issue, sale or other disposition by the
Company of (including by way of merger, consolidation, share exchange or any
similar transaction) securities (or options, rights or warrants to purchase, or
securities convertible into, such securities) representing 15% or more of the
votes associated with the outstanding securities of the Company, (iv) tender
offer or exchange offer in which any person shall acquire beneficial ownership
(as such term is defined in Rule 13d-3 under the Exchange Act), or the right to
acquire beneficial ownership, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the right to
acquire beneficial ownership of, 15% or more of the outstanding shares of
Company Common Stock, (v) recapitalization, restructuring, liquidation,
dissolution, or other similar type of transaction with respect to the Company,
(vi) transaction which is similar in form, substance or purpose to any of the
foregoing transactions or (vii) any public announcement of a proposal or plan to
do any of the foregoing (including, without limitation, the filing of a
registration statement under the Securities Act) or any agreement to engage in
any of the foregoing; provided, however, that the term "Acquisition Proposal"
shall not include the Merger and the other Transactions.
7.2 Conduct of Businesses.
(a) Conduct by the Company. Prior to the Effective Time,
except as specifically permitted by this Agreement, unless Parent or MergerCo
has consented in writing thereto, the Company shall cause each Company
Subsidiary to conduct its operations according to their usual, regular and
ordinary course of business consistent with past practice or in accordance with
the Business Plan of the Company which has been provided to Parent ("Business
Plan") and, to the extent consistent therewith, with no less diligence and
effort then would be applied in the absence of this Agreement, will use its
reasonable best efforts to, and to cause each Company Subsidiary to, preserve
intact the business organization of the Company and each of the Company
Subsidiaries, to keep available the services of the present officers and key
employees of the Company and the Company Subsidiaries, and to preserve the good
will of customers, suppliers and all other persons having business relationships
with the Company and the Company Subsidiaries. Without limiting the generality
of the foregoing, and except as set forth on Section 7.2(a) of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary shall
(except as expressly permitted by this Agreement or to the extent Parent or
MergerCo shall otherwise consent in writing):
(i) directly or indirectly, split, combine,
subdivide, reclassify or redeem, retire, purchase or otherwise acquire,
or propose to redeem, retire or purchase or otherwise acquire, any
shares of its capital stock, or any of its other securities; or declare,
set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of Company
Common Stock, except for dividends paid by any Company Subsidiary to the
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Company or any Company Subsidiary that is, directly or indirectly,
wholly owned by the Company;
(ii) authorize for issuance, issue, pledge, reissue,
sell, deliver or agree or commit to issue, pledge, reissue, sell or
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities (including indebtedness having the
right to vote) or equity equivalents (including, without limitation,
securities convertible into capital stock, options, warrants and stock
appreciation rights), other than the issuance of shares of Company
Common Stock upon the exercise of Company Options in accordance with
their present terms;
(iii) acquire, sell, lease, encumber, license, pledge,
grant, transfer or dispose of any assets outside the ordinary course of
business which are material to the Company or any of the Company
Subsidiaries (whether by merger, consolidation, purchase, sale, asset
acquisition, stock acquisition or otherwise) or enter into any material
commitment or transaction outside the ordinary course of business,
except as set forth in Section 7.2(a) of the Company Disclosure
Schedule;
(iv) except as contemplated by the Business Plan,
incur, assume or prepay any amount of indebtedness for borrowed money,
guarantee any indebtedness, issue or sell debt securities or warrants or
rights to acquire any debt securities, guarantee (or become liable or
responsible for, whether directly, contingently or otherwise) any debt
of others, make any loans, advances or capital contributions, or
investments in, mortgage, pledge or otherwise encumber any material
assets, create or suffer any material Lien thereupon other than in the
ordinary course of business consistent with prior practice;
(v) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than any payment, discharge or
satisfaction (A) in the ordinary course of business consistent with past
practice, or (B) in connection with the transactions contemplated by
this Agreement;
(vi) change any of the accounting principles or
practices used by it (except as required by GAAP, in which case written
notice shall be provided to Parent prior to any such change);
(vii) except as required by law, (A) enter into,
adopt, amend or terminate any Company Benefit Plan, (B) enter into,
adopt, amend or terminate any agreement, arrangement, plan or policy
between the Company or any of the Company Subsidiaries and one or more
of their directors or officers, (C) except for normal increases in the
ordinary course of business consistent with past practice, increase in
any manner the compensation or fringe benefits of any
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director, officer or employee or pay any benefit not required by any
Company Benefit Plan or arrangement as in effect as of the date hereof,
(D) pay any benefit not required by any existing plan or arrangement
(including the granting of stock options, stock appreciation rights,
shares of restricted stock or performance units) or grant any severance
or termination pay to (except pursuant to existing agreements, plans or
policies), or enter into any employment or severance agreement with, any
director, officer or other employee of the Company or any Company
Subsidiaries or (E) establish, adopt, enter into, amend or take any
action to accelerate rights under any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, savings, welfare, deferred compensation,
employment, termination, severance or other employee benefit plan,
agreement, trust, fund, policy or arrangement for the benefit or welfare
of any directors, officers or current or former employees, except in
each case to the extent required by applicable Law; provided, however,
that nothing in this Agreement will be deemed to prohibit the payment of
benefits as they become payable;
(viii) adopt any amendments to the Company Certificate
or the Company Bylaws or comparable organizational documents of any
Company Subsidiary, except as expressly provided by the terms of this
Agreement;
(ix) make or file and elections in respect of Taxes
with respect to the Company or any of its Subsidiaries;
(x) terminate, cancel or request any material change
in, or agree to any material change in any Contract which is material to
the Company and the Company Subsidiaries taken as a whole, or enter into
any Contract which would be material to the Company and the Company
Subsidiaries taken as a whole, in either case other than in the ordinary
course of business consistent with past practice;
(xi) make or authorize any capital expenditure, which
would be material to the Company and the Company Subsidiaries taken as a
whole, other than in the ordinary course of business consistent with
past practice or in accordance with the Business Plan;
(xii) enter into any agreement or arrangement that
materially limits or otherwise restricts the Company or any Company
Subsidiary or any successor thereto, or that would, after the Effective
Time, limit or restrict the Surviving Corporation and its affiliates
(including Parent) or any successor thereto, from engaging or competing
in any line of business or in any geographic area, other than in the
ordinary course of business consistent with past practice;
(xiii) adopt a plan of complete or partial liquidation
or resolutions providing for or authorizing such a liquidation or a
dissolution, merger,
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consolidation, restructuring, recapitalization or reorganization (other
than plans of complete or partial liquidation or dissolution of inactive
Company Subsidiaries);
(xiv) settle, waive, release, assign or compromise any
material rights, claims or litigation (whether or not commenced prior to
the date of this Agreement);
(xv) take any action that would result in any of its
representations or warranties set forth in this Agreement becoming
untrue or cause any conditions to closing set forth in Article IX, to
not be satisfied, other than those actions that would not materially
adversely affect the Company's ability to consummate the transactions
contemplated by this Agreement; or
(xvi) authorize or enter into any formal or informal
written or other agreement or otherwise make any commitment to do any of
the foregoing actions.
(b) Conduct by Parent. Except as expressly provided in this
Agreement or as disclosed on Section 7.2(b) of Parent Disclosure Schedule,
neither Parent nor any Parent Subsidiary shall (except as expressly permitted by
this Agreement or to the extent the Company shall otherwise consent in writing):
(i) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of Parent Common Stock, except for dividends paid by
any Parent Subsidiary to Parent or any Parent Subsidiary that is,
directly or indirectly, wholly owned by Parent; or
(ii) authorize or enter into any formal or informal
written or other agreement or otherwise make any commitment to do any of
the foregoing actions; provided that nothing in this Section 7.2(b)
shall prohibit Parent from undertaking any actions contemplated by the
definition of Base Adjustments in Section 3.1(c)(ii) prior to Closing.
7.3 Tax-Free Treatment. Parent, MergerCo and the Company intend that
the Merger will qualify as either (i) a reorganization within the meaning of
Section 368(a) of the Code or (ii) a transaction that, together with the
Reincorporation (as defined herein) qualifies as an exchange under the
provisions of Section 351 of the Code and which is treated for U.S. federal
income tax purposes as a transfer of Company Common Stock by the shareholders of
the Company to Parent in exchange for the Merger Consideration. None of Parent,
MergerCo or the Company shall take, or fail to take, or cause to be taken or
fail to cause to be taken, any action, whether before or after the Closing,
which action or failure to take any action would cause the Merger to fail to
constitute a "reorganization" within the meaning of Section 368(a) of the Code
or a transaction that, together with the Reincorporation (as defined herein)
qualifies as an exchange under the provisions of Section 351 of the Code and
which is treated for U.S. federal income tax purposes as a transfer of Company
Common
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Stock by the shareholders of the Company to Parent in exchange for the Merger
Consideration. However, it is further intended by all of the parties hereto that
if the transactions with ATX described in Section 8.11 occur, and this Agreement
is assigned as provided in Section 11.5, then the incorporation of ATX, the
transactions with ATX described in Section 8.11, and the transactions described
in this Agreement will be treated for U.S. federal income tax purposes as one
integrated transaction qualifying as an exchange under the provisions of Section
351 of the Code in which the shareholders of the Company transfer Company Common
Stock in exchange for ATX stock. No party to this Agreement shall take a
position on any Tax return that is inconsistent with the intentions expressed in
this Section 7.3.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Meetings of Stockholders. Following execution of this Agreement,
(i) Parent will take all action necessary in accordance with applicable law,
Parent Certificate and Parent ByLaws to convene a meeting of its stockholders as
promptly as practicable to consider and vote upon the approval of the issuance
of Parent Common Stock to be issued pursuant to the Merger and (ii) the Company
will take all action necessary in accordance with applicable Law, the Company
Certificate and the Company Bylaws to convene a meeting of its stockholders as
promptly as practicable to consider and vote upon the approval of this Agreement
and the Transactions (the "Company Stockholders Meeting"). The proxy statements
of Parent and the Company related to their respective stockholders' meeting
shall, subject to Section 7.1 hereof, contain the recommendation of Parent Board
and the Company Board, respectively, that its stockholders approve this
Agreement and the Transactions. Subject to and in accordance with applicable
Law, each of Parent and the Company shall use its reasonable best efforts to
obtain the such approval, including, without limitation, by timely mailing the
Proxy Statement (as hereinafter defined) contained in the Form S-4 to its
stockholders. Parent and the Company shall coordinate and cooperate with each
other with respect to the timing of their respective stockholders' meetings and
shall use their reasonable best efforts to hold such meetings on the same day.
8.2 HSR and Other Filings.
(a) Subject to the terms and conditions herein provided and
to applicable legal requirements, each of the parties hereto agrees to use its
reasonable best efforts to (i) take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by
this Agreement and (ii) to cooperate with each other in connection with the
foregoing, including the taking of such actions as are necessary to obtain any
necessary consents, licenses, approvals, orders, exemptions and authorizations
by or from any public or private third party or Governmental Entity, including,
without limitation, those consents, licenses, approvals, exemptions or
authorizations required with respect to the agreements set forth in Sections
5.6(a) and 5.6(b) of the Company Disclosure Schedule and
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any others that are required to be obtained under any Law or any Contract to
which the Company or any Company Subsidiary is a party or by which any of their
respective properties or assets are bound, (iii) to defend all lawsuits or other
legal proceedings challenging this Agreement or the consummation of the
Transactions, (iv) to cause to be lifted or rescinded any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the Transactions, and (iv) to effect all necessary registrations
and submissions of information requested by governmental authorities. For
purposes of the foregoing sentence, the obligations of Parent and the Company to
use their "reasonable best efforts" to obtain waivers, consents and approvals to
loan agreements, leases and other contracts shall not include any obligation to
agree to an adverse modification of the terms of such documents or to prepay or
incur additional obligations to such other parties. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of Parent and the
Company shall take all such necessary action. The Company shall use its
reasonable best efforts to properly record all assignments of its Intellectual
Property and make all other necessary filings with the United States Patent and
Trademark Office and the United States Copyright Office.
(b) Without limiting the generality of the foregoing, as
promptly as practicable, Parent and the Company each shall properly prepare and
file any other filings required under applicable Law relating to the Merger and
the other Transactions (including filings, if any, required under the HSR Act,
the Securities Act, the Exchange Act and any other applicable federal or Blue
Sky Laws, the DGCL, Bermuda Law, other applicable Law and the rules and
regulations of NASDAQ, and the Communications Act, the PUC Regulations, and the
Utility Laws (collectively, "Other Filings"). Each of Parent and the Company
shall promptly notify the other of the receipt of any comments on, or any
request for amendments or supplements to, any Other Filings by any Governmental
Entity or official, and each of Parent and the Company shall supply the other
with copies of all correspondence between it and each of its Subsidiaries and
representatives, on the one hand, and any other appropriate governmental
official, on the other hand, with respect to any Other Filings. None of the
parties will file any such document if any of the other parties shall have
reasonably objected to the filing of such document. No party to this Agreement
shall consent to any voluntary extension of any statutory deadline or waiting
period or to any voluntary delay of the consummation of the Merger and the other
Transactions at the behest of any Governmental Entity without the consent and
agreement of the other party to this Agreement, which consent shall not be
unreasonably withheld or delayed. Parent and the Company hereby covenant and
agree to use their respective reasonable best efforts to secure termination of
any waiting periods under the HSR Act and obtain the approval of the Federal
Trade Commission (the "FTC") or any other Governmental Entity for the
transactions contemplated hereby. The Company and Parent shall keep the other
apprised of the status of matters relating to the completion of the transactions
contemplated hereby and work cooperatively in connection with obtaining any
consents from Governmental Entity, including, without limitation: (i) promptly
notifying the other of, and if in writing, furnishing the other with copies of
(or, in the case of material oral communications, advise the other orally of)
any communications from or with any Governmental Entity with respect to the
Merger or any of the other transactions contemplated by this Agreement, (ii)
permitting the
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other party to review and discuss in advance, and considering in good faith the
views of one another in connection with, any proposed written (or any material
proposed oral) communication with any Governmental Entity, (iii) not
participating in any meeting with any Governmental Entity unless it consults
with the other party in advance and to the extent permitted by such Governmental
Entity gives the other party the opportunity to attend and participate thereat,
(iv) furnishing the other party with copies of all correspondence, filings and
communications (and memoranda setting forth the substance thereof) between it
and any Governmental Entity with respect to this Agreement and the Merger, and
(v) furnishing the other party with such necessary information and reasonable
assistance as such other party may reasonably request in connection with its
preparation of necessary filings or submissions of information to any
Governmental Entity. The Company and Parent may, as each deems advisable and
necessary, reasonably designate any competitively sensitive material provided to
the other under this Section as "outside counsel only." Such materials and the
information contained therein shall be given only to the outside legal counsel
of the recipient and will not be disclosed by such outside counsel to employees,
officers, or directors of the recipient unless express permission is obtained in
advance from the source of the materials (the Company or Parent, as the case may
be) or its legal counsel.
8.3 Proxy Statement; Registration Statement. As promptly as
practicable after the execution of this Agreement, Parent and the Company shall
prepare and file with the SEC under the Securities Act a registration statement
on Form S-4 (such registration statement, together with any amendments or
supplements thereto, the "Form S-4"), in connection with the registration under
the Securities Act of the shares of Parent Common Stock to be distributed to the
stockholders of the Company in the Merger (the "Registered Securities"). The
Form S-4 also shall include a joint proxy statement/prospectus and forms of
proxies (such joint proxy statement/prospectus together with any amendments or
supplements thereto, the "Proxy Statement") relating to the stockholder meetings
of Parent and the Company and the vote of the stockholders of Parent and the
Company with respect to this Agreement and the Transactions. Parent will cause
the Proxy Statement and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder, the rules and regulations of NASDAQ,
and the DGCL and Bermuda Law, and the Company will cause the Proxy Statement to
comply as to form in all material respects with the applicable provisions of the
Exchange Act and the rules and regulations thereunder, the rules and regulations
of NASDAQ and the DGCL. Each of Parent and the Company shall furnish all
information about itself and its business and operations and all necessary
financial information to the other as the other may reasonably request in
connection with the preparation of the Proxy Statement and the Form S-4. Parent
shall use its reasonable best efforts, and the Company will cooperate with them,
to have the Form S-4 declared effective by the SEC as promptly as practicable
(including clearing the Proxy Statement with the SEC). Each of Parent and the
Company agrees promptly to correct any information provided by it for use in the
Proxy Statement and the Form S-4 if and to the extent that such information
shall have become false or misleading in any material respect, and each of the
parties hereto further agrees to take all steps necessary to amend or supplement
the Proxy Statement and, in the case of Parent, the Form S-4, and to cause the
Proxy Statement and, in the case of Parent, the Form S-4, as so amended or
supplemented to be filed with the SEC and to be disseminated to their
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respective stockholders, in each case as and to the extent required by
applicable federal and state securities laws. No amendment or supplement to the
Proxy Statement will be made without the approval of each of Parent and the
Company, which approval shall not be unreasonably withheld or delayed. Each of
Parent and the Company agrees that the information provided by it for inclusion
in the Proxy Statement or the Form S-4 and each amendment or supplement thereto,
at the time of mailing thereof and at the time of the respective meetings of
stockholders of Parent and the Company, will not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Each of the Company and Parent will advise
the other, and deliver copies (if any) to the other, promptly after either
receives notice thereof, of any request by the SEC for amendment of the Proxy
Statement or the Form S-4 or comments thereon and responses thereto or requests
by the SEC for additional information, or notice of the time when the Form S-4
has become effective or any supplement or amendment has been filed, the issuance
of any stop order or the suspension of the qualification of the Registered
Securities issuable in connection with the Merger for offering or sale in any
jurisdiction. Each of Parent and the Company shall use its reasonable best
efforts to timely mail the Proxy Statement to its stockholders as promptly as
practicable following the effective date of the Proxy Statement.
8.4 Listing Application. Parent and the Company shall cooperate and
promptly prepare and submit to the NASDAQ all reports, applications and other
documents that may be necessary or desirable to enable all of the shares of
Parent Common Stock that will be outstanding or will be reserved for issuance at
the Effective Time to be listed for trading on the NASDAQ. Each of Parent and
the Company shall furnish all information about itself and its business and
operation and all necessary financial information to the other as the other may
reasonably request in connection with such NASDAQ listing process. Each of
Parent and the Company agrees promptly to correct any information provided by it
for use in the NASDAQ listing process if and to the extent that such information
shall have become false or misleading in any material respect. Each of Parent
and the Company will advise and deliver copies (if any) to the other party,
promptly after it receives notice thereof, of any request by the NASDAQ for
amendment of any submitted materials or comments thereon and responses thereto
or requests by the NASDAQ for additional information. The parties shall use
their reasonable best efforts to cause the Surviving Corporation to cause the
Company Common Stock to be de-listed from NASDAQ and de-registered under the
Exchange Act as soon as practicable following the Effective Time.
8.5 Affiliates of the Company.
(a) At least 30 days prior to the Closing Date, the Company
shall deliver to Parent a list of names and addresses of those persons who were,
in the Company's reasonable judgment, at the record date for its stockholders'
meeting to approve the Merger, "affiliates" (each such person, an "Affiliate")
of the Company within the meaning of Rule 145. The Company shall provide Parent
such information and documents as Parent shall reasonably request for purposes
of reviewing such list. The Company shall advise the persons identified on the
list of the resale restrictions imposed by applicable securities laws
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and shall use its reasonable best efforts to deliver or cause to be delivered to
Parent, prior to the Closing Date, from each of the Affiliates of the Company
identified in the foregoing list, an Affiliate Letter in the form attached
hereto as Exhibit A. Parent shall be entitled to place legends as specified in
such Affiliate Letters on the certificates evidencing any shares of Parent
Common Stock to be received by such Affiliates pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for such shares of Parent Common Stock, consistent with the terms of such
Affiliate Letters.
(b) Parent shall file the reports required to be filed by it
under the Exchange Act and the rules and regulations adopted by the SEC
thereunder, and it will take such further action as any Affiliate of the Company
may reasonably request, all to the extent required from time to time to enable
such Affiliate to sell shares of Parent Common Stock received by such Affiliate
in the Merger without registration under the Securities Act pursuant to (i) Rule
145(d)(1) or (ii) any successor rule or regulation hereafter adopted by the SEC.
8.6 Expenses. Except as otherwise provided in Section 10.2(b),
whether or not the Merger is consummated, all Expenses incurred in connection
with this Agreement and the Transactions shall be paid by the party incurring
such Expenses. For purposes of this Agreement, "Expenses" consist of all
out-of-pocket expenses (including, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a party to this
Agreement and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation, printing, filing and mailing of
the Proxy Statement, the solicitation of stockholder approvals and all other
matters related to the closing of the transactions contemplated by this
Agreement.
8.7 Officers' and Directors' Indemnification.
(a) In the event of any threatened or actual claim, action,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, demand, proceeding
or investigation in which any person who is now, or has been at any time prior
to the date hereof, or who becomes prior to the Effective Time, a director,
officer, employee, fiduciary or agent of the Company or any of the Company
Subsidiaries (the "Indemnified Parties") is, or is threatened to be, made a
party based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was a director, officer, employee,
fiduciary or agent of the Company or any of the Company Subsidiaries, or is or
was serving at the request of the Company or any of the Company Subsidiaries as
a director, officer, employee, fiduciary or agent of the Company or any Company
Subsidiary or (ii) the negotiation, execution or performance of this Agreement
or any of the Transactions, whether in any case asserted or arising before or
after the Effective Time, the parties hereto agree to cooperate and use their
reasonable best efforts to defend against and respond thereto. It is understood
and agreed that the Company shall indemnify and hold harmless, and after the
Effective Time the Surviving Corporation and Parent shall indemnify and hold
harmless, as and to the full extent permitted by applicable law, each
Indemnified Party against any losses, claims, damages, liabilities, costs,
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expenses (including attorneys' fees and expenses), judgments, fines and amounts
paid in settlement in connection with any such threatened or actual claim,
action, suit, demand, proceeding or investigation. In the event any such
Indemnified Party is or becomes involved in any capacity in any action,
proceeding or investigation for which indemnification is to be provided under
this Agreement (whether asserted or arising before or after the Effective Time),
(A) the Company, and Parent and the Surviving Corporation after the Effective
Time, shall promptly pay expenses in advance of the final disposition of any
claim, action, suit, demand, proceeding or investigation to the full extent
permitted by law, provided that the Indemnified Party may not retain more than
one counsel (in addition to any necessary local counsel) to represent all the
Indemnified Parties and the Company, Parent and the Surviving Corporation shall
pay all reasonable fees and expenses for such counsel for the Indemnified
Parties promptly after statements therefor are received and (B) the Company,
Parent and the Surviving Corporation will use their respective reasonable best
efforts to assist in the defense of any such matter; provided that in no event
shall the Company, Parent or the Surviving Corporation be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld); and provided further that neither Parent nor the
Surviving Corporation shall have no obligation hereunder to any Indemnified
Party when and if a court of competent jurisdiction shall ultimately determine,
and such determination shall become final and non-appealable, that
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law. Any Indemnified Party wishing to claim
indemnification under this Section 8.7, upon learning of any such claim, action,
suit, demand, proceeding or investigation, shall notify the Company and, after
the Effective Time, Parent and the Surviving Corporation, thereof; provided that
the failure to so notify shall not affect the obligations of the Company, Parent
and the Surviving Corporation except to the extent such failure to notify
materially prejudices such party.
(b) Parent agrees that all rights to indemnification
existing in favor of, and all limitations on the personal liability of, the
directors, officers, employees and agents of the Company and the Company
Subsidiaries provided for in the Company Certificate or Bylaws as in effect as
of the date hereof with respect to matters occurring prior to the Effective
Time, and including the Merger, shall continue in full force and effect for a
period of not less then six years from the Effective Time; provided, however,
that all rights to indemnification in respect of any claims (each a "Claim")
asserted or made within such period shall continue until the final disposition
of such Claim. Prior to the Effective Time, the Company may purchase an extended
reporting period endorsement under the Company's existing directors' and
officers' liability insurance coverage for the Company's directors and officers
in a form and with terms acceptable to the Company, which shall provide such
directors and officers with coverage for six years following the Effective Time
of not less than the existing coverage under, and have other terms not
materially less favorable to, the insured persons than the directors' and
officers' liability insurance coverage presently maintained by the Company, so
long as the cost is less than $ 750,000, provided that, the Company agrees to
cooperate in good faith with the Parent in order to obtain the lowest premium
for the above referenced coverage. In the event that $ 750,000 is insufficient
for the above referenced coverage, the Company may spend up to that amount to
purchase such lesser coverage as is possible.
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(c) This Section 8.7 is intended for the irrevocable benefit
of, and to grant third party rights to, the Indemnified Parties and shall be
binding on all successors and assigns of Parent, the Company and the Surviving
Corporation. Each of the Indemnified Parties shall be entitled to enforce the
covenants contained in this Section 8.7.
(d) In the event that Parent, the Surviving Corporation or
any of its successors or assigns (i) consolidates with or merges into any other
person or entity and shall not be the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any person or entity, then,
and in each such case, proper provision shall be made so that the successors and
assigns of Parent or the Surviving Corporation assume the obligations set forth
in this Section 8.7.
8.8 Access to Information; Confidentiality. From the date hereof
until the Effective Time, each of Parent and the Company shall, and shall cause
each of their respective Subsidiaries and each of their and their respective
Subsidiaries' officers, employees and agents to, afford to the other and to the
officers, accountants, consultants, legal counsel, financial advisors,
investment bankers, employees, agents and other representatives (collectively
"Representatives") of the other complete access at all reasonable times, upon
prior notice, to such Representatives, properties, books, records and contracts,
and shall furnish to the other such financial, operating and other data and
information concerning the business, properties, contracts, assets, liabilities,
personnel and other aspects of the other party and its Subsidiaries as the other
or its Representatives may reasonably request. Prior to the Effective Time, the
Company and the Parent shall hold in confidence all such information on the
terms and subject to the conditions contained in that certain confidentiality
agreement between Parent and the Company dated January 27, 2000 (the
"Confidentiality Agreement"). The Company hereby waives the provisions of the
Confidentiality Agreement as and to the extent necessary to permit the making
and consummation of the transactions contemplated by this Agreement. At the
Effective Time, such Confidentiality Agreement shall terminate.
8.9 Publicity. Parent and the Company shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or any transaction contemplated hereby and shall not
issue any such press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld;
provided, however, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may be required
by law or the applicable rules of any stock exchange if it has used its best
efforts to consult with the other party and to obtain such party's consent but
has been unable to do so in a timely manner. With regard to the Merger, the
parties shall make a joint public announcement of the Transactions no later than
(i) the close of trading on NASDAQ on the day this Agreement is signed, if such
signing occurs during a business day or (ii) the opening of trading on NASDAQ on
the business day following the date on which this Agreement is signed, if such
signing does not occur during a business day.
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8.10 Employee Benefits.
(a) Parent agrees that the Company will honor, and from and
after the Effective Time, Parent will cause the Surviving Corporation to honor,
all obligations under the existing terms of the employment and severance
agreements to which the Company or any Company Subsidiary is presently a party,
except as may otherwise be agreed to by the parties thereto.
(b) Parent agrees that individuals who are employed by the
Company or any Company Subsidiary immediately prior to the Closing Date shall
remain employees of the Company or such Company Subsidiary as of the Closing
Date (each such employee, an "Affected Employee"); provided, however, that
nothing contained herein shall confer upon any Affected Employee the right to
continued employment by the Company or any Company Subsidiary for any period of
time after the Closing Date which is not otherwise required by law or contract.
(c) To the extent that any Affected Employees becomes a
participant in any employee benefit plan maintained by Parent or any Parent
Subsidiary, Parent shall, or shall cause such Parent Subsidiary to, give such
Affected Employees full credit solely for the purposes of eligibility and
vesting under such employee benefits plans for such Affected Employee's service
with Parent, the Company or any affiliate thereof to the same extent recognized
immediately prior to the Closing Date; provided, that the entry dates into such
employee benefit plans for such Affected Employees will be in the normal course
of such plan's administration, which may be the beginning of the plan year.
(d) After the Effective Time, until the date Parent
determines in its sole discretion to modify, amend, terminate or replace the
Company Benefit Plans, Parent shall cause the Surviving Corporation to maintain
the Company Benefit Plans (but not bonus or equity-based plans) on substantially
similar terms to those currently in effect. After the Effective Time, if Parent
decides to move the Affected Employees to a Parent employee benefit plan, the
Affected Employees will be permitted to participate in Parent employee benefit
plan on terms substantially similar to those provided to employees of Parent.
8.11 Reincorporation and Acquisition.
(a) Parent shall take any and all action which may be deemed
advisable or necessary to reincorporate by merger (the "Reincorporation") from a
Bermuda corporation to a Delaware corporation so that at the time of the
consummation of the transactions contemplated by this Agreement, Parent is a
Delaware corporation.
(b) Parent shall be permitted to take any and all action
which may be deemed advisable or necessary to consummate the transactions
contemplated by the Recapitalization and Plan of Merger, dated as of March 9,
2000, among ATX, certain stockholders of ATX and Parent (the "ATX Transaction");
provided that, none of the actions taken in accordance with Sections 8.11(a) and
(b) or consequences thereof shall be deemed a breach of a representation or
warranty or be deemed to cause a failure of a condition set
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forth in Article IX not to be satisfied if, but for such action or consequence
thereof, such condition would otherwise be satisfied.
8.12 Other Actions. (a) During the period from the date of this
Agreement to the Effective Time, the Company and Parent shall not, and shall not
permit any of their respective subsidiaries to, take any action that would, or
that could reasonably be expected to, result in any of the conditions to the
Merger set forth in Article IX of this Agreement not being satisfied other than
as provided in this Agreement.
(b) Parent shall have the right to have its designated
representatives, as provided to the Company from time to time (the "Designated
Parent Representatives"), upon reasonable notice, present within normal business
hours and without material disruption to the business of the Company for
consultation at the Company's principal offices from the date hereof until the
Closing Date. Such Designated Parent Representatives shall have the right to
review and become familiar with the conduct of the business of the Company and
shall be available to be consulted and shall have authority on behalf of Parent
in regard to consultation in regard to Material Decisions (as defined below in
this Section 8.12(b)). Parent shall take all reasonable actions necessary to
ensure that its Designated Parent Representatives will be readily available
during normal business hours. Without written notice to and favorable
consultation (which shall not be unreasonably withheld, delayed or conditioned
with respect to time or content) with the Designated Parent Representatives,
unless the Parent or the Designated Parent Representatives shall have failed to
respond within five business days to such written notice, the Company 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 obligations or the business of the Company following the
date hereof: (i) any purchase order, capital expenditure or other purchase of
assets in excess of $100,000 in any instance to be delivered, or the payment for
which shall become due, after the Closing Date; (ii) the acceptance of any
material customer contract or the establishing of any pricing policy that
deviates in any material respect from the terms and conditions of current
pricing policies as set forth in Section 8.12(b) of the Company Disclosure
Schedule; (iii) any general communication with customers related to the business
or to the Merger; or (iv) a material change in material promotional or marketing
decisions or policies.
8.13 Notification of Certain Matters. The Parent and the Company
shall promptly notify each other of (a) the occurrence or non-occurrence of any
fact or event which would reasonably be expected (i) to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date of this Agreement to the Effective
Time, (ii) to cause any material covenant, condition or agreement hereunder not
to be complied with or satisfied in all material respects or (iii) to result in
the case of Parent, a Parent Material Adverse Effect, or in the case of the
Company, a Company Material Adverse Effect, (b) any failure of the Company or
Parent, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder in any material
respect; provided, however, that no such notification shall affect the
representations or warranties of any party or the conditions to the obligations
of any party hereunder, (c) any notice or other material
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communications from any Governmental Entity in connection with the transactions
contemplated by this Agreement and (d) the commencement of any suit, action or
proceeding that seeks to prevent, seeks damages in respect of, or otherwise
relates to the consummation of the transactions contemplated by this Agreement.
8.14 Notification of Parent Transactions. If prior to the Closing
Date Parent shall enter into a definitive agreement for a Parent Transaction,
Parent shall promptly notify the Company of such transaction. Nothing set forth
in this Agreement shall be deemed to prohibit or otherwise limit Parent from
pursuing and entering into agreements for or consummating Parent Transactions.
ARTICLE IX
CONDITIONS TO THE MERGER
9.1 Conditions to the Obligations of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver, where permissible, at or prior to the
Closing Date, of each of the following conditions:
(a) Stockholder Approvals. This Agreement and the
Transactions shall have been duly approved by the Requisite Company Vote of the
stockholders of the Company and the issuance of shares of Parent Common Stock in
the Merger shall have been duly approved by the Requisite Parent Vote.
(b) Hart-Scott-Rodino Act. Any waiting period (and any
extension thereof) applicable to the consummation of the Merger under the HSR
Act shall have expired or been terminated.
(c) No Injunctions, Orders or Restraints; Illegality. No
statute, rule, regulation, executive order, decree, ruling or injunction,
whether permanent, preliminary or temporary (an "Injunction"), shall have been
enacted, entered, promulgated or enforced by any Governmental Entity or court
which restrains, enjoins or otherwise prohibits the consummation of the Merger
substantially on the terms contemplated hereby and no Governmental Entity shall
have instituted any proceeding seeking any such law, order, injunction or decree
or any other Person has filed a motion and such motion has not been dismissed,
including for an Injunction, which restrains, enjoins or otherwise prohibits
consummation of the Merger substantially on the terms contemplated hereby;
provided that the party seeking to rely upon this condition has fully complied
with and performed its obligations pursuant to Section 8.2 hereof.
(d) Form S-4. The Form S-4 shall have been declared
effective by the SEC under the Securities Act, and no stop order suspending the
effectiveness of the Form S-4 shall have been issued by the SEC, and no
proceeding for that purpose shall have been initiated or, to the knowledge of
Parent or the Company, threatened by the SEC.
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(e) Listing. Parent shall have obtained the approval for the
listing of the shares of Parent Common Stock issuable in the Merger and upon
exercise of the Assumed Options on NASDAQ, subject to official notice of
issuance.
(f) Registration Rights Agreement. Parent and the Voting
Agreement Stockholders shall have entered into a registration rights agreement
in substantially the form set forth in Exhibit B to this Agreement (the
"Registration Rights Agreement").
(g) Government Consents. All consents, approvals and action
of any Governmental Entity required to permit the consummation of the Merger and
the other transactions contemplated by this Agreement shall have been obtained
or made, free of any condition that would reasonably be expected to have a
Company Material Adverse Effect or a Parent Material Adverse Effect, as the case
may be.
9.2 Conditions to Obligations of the Company. The obligations of the
Company to effect the Merger are further subject to the following conditions:
(a) Representations and Warranties. (i) Those
representations and warranties of Parent set forth in this Agreement which are
qualified by a Parent Material Adverse Effect or words of similar effect shall
be true and correct as of the date of this Agreement and as of the Closing Date
as though made on and as of the Closing Date (except to the extent such
representations and warranties expressly relate to a specific date or as of the
date hereof, in which case such representations and warranties shall be true and
correct as of such date), and (ii) those representations and warranties of
Parent set forth in this Agreement which are not so qualified shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (other than
representations and warranties that expressly relate to a specific date or as of
the date hereof, in which case such representations and warranties shall be true
and correct in all material respects as of such date).
(b) Performance of Obligations of Parent. Parent shall have
performed in all material respects all obligations required to be performed by
it under this Agreement, including, without limitation, the covenants contained
in Articles VII and VIII hereof.
(c) Officers' Certificate. The Company shall have received a
certificate of the Chief Executive Officer or President and the Chief Financial
Officer of Parent, dated the Closing Date, to the effect that the statements set
forth in paragraphs (a) and (b) of this Section 9.2 are true and correct.
(d) Consents, Approvals, Etc. All material consents,
authorizations, orders and approvals of (or filings or registrations with) any
governmental commission, board, other Governmental Entity or third parties
required to be made or obtained by Parent and Parent Subsidiaries and affiliated
entities in connection with the execution, delivery and performance of this
Agreement shall have been obtained or made.
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(e) Legal Opinion. The Company shall have received a written
opinion from its counsel, Goodwin, Procter & Hoar LLP, in form and substance
reasonably satisfactory to it, to the effect that the Merger will constitute
either (i) a tax free reorganization within the meaning of Section 368(a) of the
Code or (ii) a transaction that, together with the Reincorporation (as defined
herein) qualifies as an exchange under the provisions of Section 351 of the Code
and which is treated for U.S. federal income tax purposes as a transfer of
Company Common Stock by the shareholders of the Company to Parent in exchange
for the Merger Consideration and such opinion shall not have been withdrawn.
9.3 Conditions to Obligations of Parent. The obligation of Parent to
effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. (i) Those
representations and warranties of the Company set forth in this Agreement which
are qualified by a Company Material Adverse Effect or words of similar effect
shall be true and correct as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date (except to the extent such
representations and warranties expressly relate to a specific date or as of the
date hereof, in which case such representations and warranties shall be true and
correct as of such date), and (ii) those representations and warranties of the
Company set forth in this Agreement which are not so qualified shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (other than such
representations and warranties that expressly relate to a specific date, in
which case such representations and warranties shall be true and correct in all
material respects as of such date).
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement, including, without limitation, the
covenants contained in Articles VII and VIII hereof.
(c) Absence of Company Changes. From September 30, 1999
through the Closing Date, there shall not have occurred any change concerning
the Company or any of the Company Subsidiaries that has had, or is reasonably
expected to have, a material adverse effect on the business, properties, assets,
results of operations or financial condition of the Company and the Company
Subsidiaries taken as a whole (other than any (i) regulatory changes generally
affecting the industries in which the Company operates, including changes due to
actual or proposed changes in law or regulations, or (ii) changes that are
related to a general drop in stock prices in the United States resulting from
political or economic turmoil.)
(d) Officers' Certificate. Parent shall have received a
certificate of the Chief Executive Officer or President and the Controller of
the Company to the effect that the statements set forth in paragraphs (a) and
(b) of this Section 9.3 are true and correct.
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(e) Consents, Approvals, Etc. All material consents,
authorizations, orders and approvals of (or filings or registrations with) any
governmental commission, board, other Governmental Entity or third parties
required to be made or obtained by the Company and the Company Subsidiaries and
affiliated entities in connection with the execution, delivery and performance
of this Agreement shall have been obtained or made.
(f) Stockholders Agreement. The Principal Stockholders who
are required by the Voting Agreement to enter into the Stockholders Agreement,
substantially in the form of Exhibit C attached hereto, and Parent shall have
entered into such agreement, which shall remain in full force and effect.
(g) Legal Opinion. Parent shall have received a written
opinion from its counsel, Paul, Weiss, Rifkind, Wharton & Garrison, in form and
substance reasonably satisfactory to it, to the effect that the Merger will
constitute (i) a tax free reorganization within the meaning of Section 368(a) of
the Code or (ii) a transaction that, together with the Reincorporation (as
defined herein) qualifies as an exchange under the provisions of Section 351 of
the Code and which is treated for U.S. federal income tax purposes as a transfer
of Company Common Stock by the shareholders of the Company to Parent in exchange
for the Merger Consideration and such opinion shall not have been withdrawn.
(h) Affiliate Letters. The Parent shall have received an
executed copy of an Affiliate Letter from each Affiliate of the Company.
(i) Other Agreements. Those letter agreements dated as of
the date hereof between Parent and certain individuals and executed in
connection herewith shall have been performed at or prior to Closing.
9.4 Parent Transactions. In the event that Parent undertakes any
action contemplated by the definition of Base Adjustments in Section 3.1(c)(ii)
prior to the Closing, no condition set forth in this Article IX shall be deemed
not to be satisfied if, but for such action or the consequences thereof, such
condition would otherwise be satisfied.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated and abandoned at
any time prior to the Effective Time, whether before or after the approval of
matters presented in connection with the Merger by the stockholders of Parent
and the Company:
(a) by the mutual written consent of Parent and the Company.
(b) by either of Parent or the Company:
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(i) if any required approval of the stockholders of
Parent or the Company that is a condition to the obligations of Parent
or the Company under Section 9.1 of this Agreement shall not have been
obtained at the Company Stockholders Meeting or the special meeting of
the Parent's stockholders to be held to consider approval of the
issuance of Parent Common Stock to be issued in the Merger; or
(ii) if any Governmental Entity shall have issued a
final and nonappealable Injunction (which Injunction the parties have
used their best efforts to lift), which permanently enjoins the Merger.
(c) by the Company, if the Company Board shall elect to
terminate this Agreement in order to recommend or approve a Superior Proposal,
provided that (i) the Company has complied with all the terms of Section 7.1 and
notified Parent in writing that it intends to terminate this Agreement in order
to recommend or approve a Superior Proposal, attaching the most current version
of such proposal to such notice, (ii) at any time after the third business day
following written notification by the Company to Parent of the Company's
intention to enter into a binding agreement with respect to such proposal, after
taking into account any modifications to the transactions contemplated by this
Agreement that Parent has then proposed in writing and not withdrawn, the
Company Board has determined that such proposal is and continues to be a
Superior Proposal and (iii) concurrently with the effectiveness of such
termination, pays to Parent the termination fee under Section 10.2(b), it being
understood on the date of the effectiveness of such termination, whether or not
prior to such effectiveness, the Company may enter into an agreement with
respect to such Superior Proposal which agreement, if entered into prior to such
effectiveness must be conditioned upon the payment of the termination fee on the
same date as provided herein. The termination under this Section 10.1(c) shall
not be effective until the Company has made payment to Parent of the amounts
required to be paid pursuant to Section 10.2(b).
(d) by Parent, if (i) the Company Board shall have resolved
to or shall have (A) withdrawn, modified or changed in a manner adverse to
Parent its approval or recommendation of this Agreement, (B) failed to include
such recommendation in the Proxy Statement, (C) approved or recommended any
Acquisition Proposal, (D) entered into a definitive agreement with respect to a
Superior Proposal or (E) made a public announcement of its intention to take any
of the foregoing actions or (ii) a tender offer or exchange offer for more than
15% of the outstanding shares of the Company Common Stock is commenced and the
Company Board fails to recommend against acceptance of such tender offer or
exchange offer by its stockholders (including by taking no position with respect
to the acceptance of such tender offer or exchange offer by its stockholders).
(e) by Parent, if it is not in material breach of its
obligations under this Agreement, on or after the later of (x) October 31, 2000,
or (y) 120 days following the date on which Parent last made an initial
announcement that it had entered into a definitive agreement for a Parent
Transaction, if any of the conditions provided in Sections 9.1 and 9.3 of this
Agreement have not been satisfied and have not been waived in writing by Parent
prior to such date; provided that, if the Merger has not occurred by reason of
the
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nonsatisfaction of the condition set forth in Section 9.1(b) hereof or the
pendency of a non final Injunction, Parent shall have used its best efforts to
cause such condition to be satisfied or have any such Injunction stayed or
reversed.
(f) by the Company, if it is not in material breach of its
obligations under this Agreement, on or after October 31, 2000, if any of the
conditions provided in Sections 9.1 and 9.2 of this Agreement have not been
satisfied and have not been waived by the Company; provided, however, if the
Merger has not occurred by reason of the nonsatisfaction of the condition set
forth in Section 9.1(b) hereof or the pendency of a non-final Injunction, the
Company shall have used its best efforts to cause such condition to be satisfied
or have any such Injunction stayed or reversed.
(g) by Parent, upon a breach of any material representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in either of Section
9.3(a) or 9.3(b) would not be satisfied (a "Terminating Company Breach");
provided, however, that, if such Terminating Company Breach is curable by the
Company through the exercise of its reasonable best efforts and for so long as
the Company continues to exercise such reasonable best efforts, Parent may not
terminate this Agreement under this Section 10.1(g).
(h) by the Company, upon breach of any material
representation, warranty, covenant or agreement on the part of Parent set forth
in this Agreement, or if any representation or warranty of Parent shall have
become untrue, in either case such that the conditions set forth in either of
Section 9.2(a) or 9.2(b) would not be satisfied (a "Terminating Parent Breach");
provided, however, that, if such Terminating Parent Breach is curable by Parent
through its reasonable best efforts and for so long as Parent continues to
exercise such reasonable best efforts, the Company may not terminate this
Agreement under this Section 10.1(h); or
(i) by the Company if (i) as of a date not more than three
business days before the expected Closing Date, the Average Parent Common Stock
Price would be less than 69% of the Base Stock Price, (ii) irrevocable notice
shall have been provided to Parent in accordance with the notice provisions
hereunder indicating the Company's intention to terminate the Agreement, and
(iii) within one business day of receipt of such notice, Parent shall not have
agreed (by unilateral notice to the Company) to increase the number of shares of
Parent Common Stock to be issued to the shareholders of the Company pursuant to
the Merger such that as of the Closing Date, the aggregate value (based on the
Average Parent Common Stock Price) of the Parent Common Stock to be received by
the shareholders of the Company will be equal to the aggregate value (based on
the Average Parent Common Stock Price) of Parent Common Stock they would have
been entitled to receive if the Average Parent Common Stock Price were equal to
the Floor Stock Price. In the event the Company serves the notice provided for
in (ii) above, and the Parent does not agree to increase the number of shares in
accordance with (iii) above, then the termination shall become effective
immediately on the following business day.
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10.2 Effect of Termination.
(a) In the event of the termination of this Agreement
pursuant to Section 10.1 hereof, this Agreement shall forthwith become null and
void and have no effect, without any liability on the part of any party hereto
or its Representatives, affiliates, trustees, directors, officers or
stockholders and all rights and obligations of any party hereto shall cease
except for the agreements contained in Sections 8.6, 8.8 and 11.4 and this
Section 10.2 which shall survive the termination; provided, however, that
nothing contained in this Section 10.2 shall relieve any party from liability
for any fraud or willful breach of its representations or warranties or breach
of its covenants or agreements set forth in this Agreement.
(b) In the event the Company shall have terminated this
Agreement pursuant to Section 10.1(c), or Parent shall have terminated this
Agreement pursuant to Section 10.1(d)(i), then the Company shall simultaneously
with such termination pay Parent a termination fee equal to $19.0 million (the
"Termination Amount"). In the event that Parent shall have terminated this
Agreement pursuant to Section 10.1(d)(ii) and either (x) the Company shall have
entered into a definitive agreement with respect to the tender or exchange offer
giving rise to such termination or (y) the person making the tender or exchange
offer giving rise to such termination shall have accepted shares for payment
pursuant to such tender or exchange offer, the Company shall pay, upon the
earlier of entering into a definitive agreement and the acceptance of shares for
payment, to the Parent a termination fee equal to the Termination Amount.
(c) Any payment required by this Section 10.2 shall be
payable by the Company to Parent by wire transfer of immediately available funds
to an account designated by Parent.
(d) The Company acknowledges that the agreements contained
in this Section 10.2 are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent and MergerCo would
not enter into this Agreement; accordingly, if the Company fails to pay promptly
the amounts due pursuant to Section 10.2(b), and, in order to obtain such
payment, Parent commences a suit which results in a judgment against the Company
for all or a portion of such amounts, the Company shall pay to Parent's Expenses
in connection with such suit, together with interest on the amounts payable to
Parent at the prime rate of The Chase Manhattan Bank in effect on the date such
payment was required to be made.
10.3 Amendment. This Agreement may be amended by the parties hereto
by an instrument in writing signed on behalf of each of the parties hereto at
any time before or after any approval hereof by the stockholders of Parent and
the Company, but in any event following authorization by Parent Board and the
Company Board; provided, however, that after any such stockholder approval, no
amendment shall be made which by law requires further approval by the
stockholders without obtaining such approval.
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ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or sent if delivered personally or sent by
cable, telegram, telecopier, facsimile or telex or sent by prepaid overnight
carrier to the parties at the following addresses (or at such other addresses as
shall be specified by the parties by like notice):
(a) if to Parent:
CoreComm Limited
110 East 59th Street
New York, NY 10022
Attention: Jared L. Gurfein, Esq.
Facsimile No.: (212) 906-8489
with a copy to:
Kenneth M. Schneider, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Facsimile No.: (212) 757-3990
(b) if to the Company:
Voyager.net, Inc.
4660 S. Hagadorn Road
Suite 320
East Lansing, MI 48823
Attention: Christopher P. Torto
Facsimile No.: (517) 324-8947
with a copy to:
David F. Dietz, P.C.
Joseph L. Johnson III
Neil McLaughlin, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Facsimile No.: (617) 523-1231
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11.2 Certain Definitions. For purposes of this Agreement:
(a) The term "affiliate," as applied to any person, means
any other person directly or indirectly controlling, controlled by, or under
common control with, that person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through the
ownership of voting securities, by contract or otherwise.
(b) The term "business day" means any day, other than
Saturday, Sunday or a federal holiday, and shall consist of the time period from
12:01 a.m. through 12:00 midnight Eastern time. In computing any time period
under this Agreement, the date of the event which begins the running of such
time period shall be included except that if such event occurs on other than a
business day such period shall begin to run on and shall include the first
business day thereafter.
(c) The term "including" means, unless the context clearly
requires otherwise, including but not limited to the things or matters named or
listed after that term.
(d) The term "person" shall include individuals,
corporations, limited and general partnerships, trusts, limited liability
companies, associations, joint ventures, Governmental Entities and other
entities and groups (which term shall include a "group" as such term is defined
in Section 13(d)(3) of the Exchange Act).
(e) The term "Subsidiary" means any corporation more than
50% of whose outstanding voting securities, or any partnership, joint venture or
other entity more than 50% of whose total equity interest, is directly or
indirectly owned by Parent or the Company, as the case may be.
11.3 Non-Survival of Representations, Warranties, Covenants and
Agreements. Except for Articles I, II and IV, the last sentence of Section
8.2(a), and Sections 7.3, 8.4, 8.5, 8.6, 8.7 and 8.10 and this Article XI, none
of the representations, warranties, covenants and agreements contained in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, and thereafter there shall be no liability on the
part of none of Parent, MergerCo or the Company or any of their respective
officers, directors or stockholders in respect thereof. Except as expressly set
forth in this Agreement, there are no representations or warranties of any party
hereto, express or implied.
11.4 Miscellaneous. This Agreement (i) constitutes, together with the
Confidentiality Agreement, Parent Disclosure Schedule and the Company Disclosure
Schedule, the entire agreement and supersedes all of the prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof, (ii) shall be binding upon and inure to
the benefits of the parties hereto and their respective successors and assigns
and is not intended to confer upon any other
60
<PAGE> 67
person (except as set forth below) any rights or remedies hereunder and (iii)
may be executed in two or more counterparts which together shall constitute a
single agreement. Except as provided in Section 8.7, this Agreement is not
intended to confer upon any person other than the parties to this Agreement any
rights or remedies under this Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their 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 in the Delaware Courts (as
hereinafter defined), this being in addition to any other remedy to which they
are entitled at law or in equity.
11.5 Assignment. Except as expressly permitted by the terms hereof,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either party hereto without the prior written consent of
the other party, except that Parent shall assign all of its rights, interests
and obligations under this Agreement to ATX, upon consummation of the ATX
Transaction if such consummation occurs prior to the Closing provided that,
notwithstanding such assignment, Parent shall remain liable under this
Agreement. If such assignment occurs, then (i) ATX will acquire the Company by
merging a wholly owned first-tier domestic subsidiary of ATX into the Company,
(ii) the acquisition of Parent by ATX will be consummated after the
Reincorporation of Parent, and (iii) the acquisition of Parent by ATX will be
structured so that it will be treated for U.S. federal income tax purposes as a
transfer of stock of Parent by Parent stockholders in exchange for stock issued
by ATX.
11.6 Severability. 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.
11.7 Choice of Law/Consent to Jurisdiction. All disputes, claims or
controversies arising out of this Agreement, or the negotiation, validity or
performance of this Agreement, or the Transactions shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws. Each of Parent, MergerCo and the Company hereby
irrevocably and unconditionally consents to submit to the sole and exclusive
jurisdiction of the courts of the State of Delaware and of the United States of
America located in the State of Delaware (the "Delaware Courts") for any
litigation arising out of or relating to this Agreement, or the negotiation,
validity or performance of this Agreement, or the Transactions (and agrees not
to commence any litigation relating thereto except in such courts), waives any
objection to the laying of venue of any such litigation in the Delaware Courts
and agrees not to plead or claim in any Delaware Court that such litigation
brought therein has been brought in any inconvenient forum. Each of the parties
hereto agrees, (a) to the extent such party is not otherwise subject to service
of process in the State of Delaware, to appoint and maintain an agent in the
State of Delaware as such party's agent for acceptance of legal process, and (b)
that service of process may also be made on such party by prepaid certified mail
with a proof of mailing
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<PAGE> 68
receipt validated by the United States Postal Service constituting evidence of
valid service. Service made pursuant to (a) or (b) above shall have the same
legal force and effect as if served upon such party personally within the State
of Delaware. For purposes of implementing the parties' agreement to appoint and
maintain an agent for service of process in State of Delaware, each such party
does hereby appoint The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, as such agent.
11.8 Incorporation. The Parent Disclosure Schedule and the Company
Disclosure Schedule and all Exhibits and Schedules attached hereto and thereto
and referred to herein and therein respectively are hereby incorporated herein
and made a part hereof for all purposes as if fully set forth herein.
11.9 The 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.
11.10 No Agreement Until Executed. Irrespective of negotiations among
the parties or the exchanging of drafts of this Agreement, this Agreement shall
not constitute or be deemed to evidence a contract, agreement, arrangement or
understanding among the parties hereto unless and until (i) the Company Board
has approved the terms of this Agreement, including, without limitation, for
purposes of Section 203 of the DGCL and any applicable provision of the Company
Certificate, (ii) Parent Board has approved the terms of this Agreement,
including, without limitation, for purposes of the DGCL and Bermuda law and any
applicable provisions of Parent Certificate and (ii) this Agreement is executed
by the parties hereto.
11.11 Obligations of Parent and of the Company. Whenever this
Agreement requires a Parent Subsidiary to take any action, that requirement
shall be deemed to include an undertaking on the part of Parent to cause that
Parent Subsidiary to take that action. Whenever this Agreement requires a
Company Subsidiary to take any action, that requirement shall be deemed to
include an undertaking on the part of the Company to cause that Company
Subsidiary to take that action and, after the Effective Time, on the part of the
Surviving Corporation to cause that Company Subsidiary to take that action.
[Remainder of page intentionally left blank]
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<PAGE> 69
IN WITNESS WHEREOF, Parent, MergerCo and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
CORECOMM LIMITED
By: /s/ RICHARD J. LUBASCH
--------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President--
General Counsel
VOYAGER.NET, INC.
By: /s/ CHRISTOPHER P. TORTO
--------------------------------
Name: Christopher P. Torto
Title: Chief Executive Officer
CORECOMM GROUP SUB I,
INC.
By: /s/ RICHARD J. LUBASCH
--------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President--
General Counsel
<PAGE> 70
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of __________ __, 2000
(the "Agreement"), by and between [CoreComm Limited], a _____________
corporation ("CoreComm" or the "Company") and the holders of Common Stock (as
hereinafter defined) listed on Schedule 1 attached hereto (each a "Stockholder"
and, collectively, the "Stockholders").
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as
of March ___, 2000 (the "Merger Agreement"), by and among the Company, CoreComm
Group Sub I, Inc., a Delaware corporation and a wholly-owned subsidiary of
Parent, and Voyager.net, Inc., a Delaware corporation, and, with respect to
certain provisions thereof, each of the Stockholders is entitled to receive
shares of the Company's common stock, par value $.01 per share (the "Common
Stock") and cash;
WHEREAS, it is a condition to the consummation of the merger
and the other transactions contemplated by the Merger Agreement that the Company
grant to the Stockholders the registration rights and other rights set forth
herein; and
In consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. General; Securities Subject to this Agreement.
1.1 Grant of Rights. The Company hereby grants
registration rights to the Stockholders upon the terms and subject to the
conditions set forth in this Agreement. Capitalized terms used herein and not
defined shall have the meanings assigned to such terms in the Merger Agreement.
1.2 Registrable Securities. For the purposes of
this Agreement, "Registrable Securities" means any shares of Common Stock issued
to the Stockholders pursuant to the Merger Agreement; provided, however, that
(i) shares shall cease to be Registrable Securities for purposes of this
Agreement when a registration statement covering such Registrable Securities has
been declared effective under the Securities Act by the Commission and all such
Registrable Securities have been disposed of pursuant to such effective
registration statement and (ii) the securities of a Stockholder shall be deemed
not to be Registrable Securities at any time when the entire amount of such
Stockholder's Registrable Securities proposed to be sold in a single sale are
or, in the opinion of counsel satisfactory to the Company, in its reasonable
judgment, may be distributed to the public pursuant to Rule 144 (or any
successor provision then in effect) under the Securities Act.
1.3 Stockholders of Registrable Securities. A
Person is deemed to be a holder of Registrable Securities whenever such Person
(i) is a party to this Agreement (or a permitted transferee thereof) and (ii)
owns of record Registrable Securities. If the Company receives conflicting
instructions, notices or elections from
<PAGE> 71
2
two or more Persons with respect to the same Registrable Securities, the Company
may act upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities.
2. Demand Registration Rights.
2.1 Demand Registration.
(a) At any time on or after six (6)
months from the date of this Agreement, the Stockholders may make a written
request (specifying the intended method of disposition) (such Stockholders, the
"Initiating Stockholders") for registration under the Securities Act (a "Demand
Registration") of all or part of the shares of Common Stock which constitute
such Initiating Stockholders' Registrable Securities; provided, however, that,
(i) the Company shall not be required to effect more than one (1) Demand
Registration pursuant to this Agreement, (ii) the number of the shares of Common
Stock proposed to be registered by the Initiating Stockholders shall not be less
than 1,500,000 shares (subject to appropriate adjustments to reflect stock
splits, stock dividends, corporate recapitalizations or similar transactions) as
of the date of the request, and (iii) the Initiating Stockholders shall be the
holders as of the date of the request of at least 43.5% of the then outstanding
shares of Common Stock that constitute Registrable Securities hereunder.
(b) If at the time of any request to
register Registrable Securities pursuant to this Section 2.1, the Company is
engaged or plans to engage in within ninety (90) days of the time of such
request in a registered public offering or any other activity which, in the good
faith determination of the Board of Directors of the Company, would be required
to be disclosed under applicable law as a result of such request or would be
materially and adversely affected by the requested registration (each, a
"Company Event"), then the Company may at its option direct that such request be
delayed for a reasonable period of time not in excess of three (3) months from
the effective date of such offering or the date of completion of such other
activity, as the case may be, such right to delay a request to be exercised by
the Company not more than once in any 365-day period. In addition, the Company
shall not be required to effect any registration within three (3) months after
the effective date of any other Registration Statement of the Company. Within
ten days after receipt of a request for a Demand Registration, the Company shall
give written notice (the "Notice") of such request to all other Stockholders
holding the class of stock to which such Demand Registration relates and shall
include in such registration all Registrable Securities of that class that the
Company has received written requests for inclusion therein within 15 days after
the Notice is given. Thereafter, in the case of Demand Registration, the Company
may elect to include in such registration additional shares of Common Stock
issued by the Company. All requests made pursuant to this Section 2.1 shall
specify the class and aggregate number of Registrable Securities to be
registered.
2.2 Effective Demand Registration. The Company
shall use reasonable commercial efforts to cause any Demand Registration to
become effective
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3
not later than ninety (90) days after it receives a request under Section 2.1
hereof and to remain effective for the lesser of (i) the period during which all
Registrable Securities registered in the Demand Registration are sold and (ii)
one hundred and twenty (120) days; provided, however, that if the Initiating
Stockholders request the Company to withdraw such registration, other than as
the result of a breach by the Company, it shall constitute a Demand Registration
unless the Initiating Stockholders promptly pay all of the costs and expenses
incurred by the Company in connection with such registration.
2.3 Underwriting Procedures.
(a) The offering of Registrable
Securities pursuant to a Demand Registration shall be in the form of a firm
commitment underwritten offering and the managing underwriter and other
underwriters selected for such offering shall be selected by the Company,
provided that the managing underwriter and other underwriters are reasonably
acceptable to the Initiating Stockholders (having due regard to the experience
and relationship with the Company of the managing underwriter and the other
underwriters) (the "Approved Underwriter"). In such event, if the Approved
Underwriter advises the Company in writing that in its opinion the aggregate
amount of such Registrable Securities requested to be included in such offering
is sufficiently large to have a material adverse effect on the success of such
offering, the Company shall include in such registration only the aggregate
amount of Registrable Securities that in the opinion of the Approved Underwriter
may be sold without any such material adverse effect and shall reduce pro rata
based on the number of Registrable Securities included in the request for Demand
Registration, the amount of Registrable Securities to be included by each
Stockholder in such registration.
(b) Distribution by Underwriters. The
managing underwriter or underwriters selected for any offering shall enter into
an agreement with the Company and the Stockholders whereby the underwriters
shall be prohibited from (i) distributing 5% or greater of the Registrable
Securities to any Person in connection with the initial placement of the
Registrable Securities for the offering and from (ii) distributing 5% or greater
of the Registrable Securities to any Person for 90 days after such initial
placement.
3. Incidental or "Piggy-Back" Registration Rights.
3.1 Notice of Registration. If, at any time or
from time to time prior to the second anniversary of the date hereof, the
Company shall determine to register any of its Common Stock for sale in an
Underwritten Offering for its own account (other than a registration relating to
(i) a registration of an employee compensation plan or arrangement adopted in
the ordinary course of business on Form S-8 (or any successor form) or any
dividend reinvestment plan or (ii) a registration of securities on Form S-4 (or
any successor form) including, without limitation, in connection with a proposed
issuance in exchange for securities or assets of, or in connection with a merger
or consolidation with another corporation), the
<PAGE> 73
4
Company will promptly give to the Stockholders written notice thereof, and
include in such registration (subject to Section 3.2) all the Registrable
Securities specified in a written request made by any one or more of the
Stockholders within ten days after such Stockholder's receipt of such written
notice from the Company ("Incidental Registration"). The right of such
Stockholder to have Registrable Securities included in a registration pursuant
to this Section 3.1 shall be conditioned upon such Stockholder's entering into
(together with the Company and/or the other holders, if any, distributing their
securities through such underwriting) an underwriting agreement in customary
form with the managing underwriter or underwriters selected for such
underwriting by the Company (the "Company Underwriter").
3.2 Cutback. If the lead managing underwriter
of an offering covered by Section 3.1 shall advise the Company in writing on or
before the date five days prior to the date then scheduled for such offering
that, in its opinion, the amount of Common Stock (including Registrable
Securities) requested to be included in such registration exceeds the amount
which can be sold in such offering without adversely affecting the distribution
of the Common Stock being offered, then the Company will include in such
registration: first, any shares proposed to be offered by the Company; second,
Registrable Securities requested to be registered by the Stockholders and any
other shares requested by other stockholders of the Company, including the
Stockholders, to be included in such registration, allocated, if necessary, pro
rata among the Stockholders and such other holders requesting such registration
on the basis of the number of the shares Beneficially Owned at the time,
provided, however, that in the event the Company will not, by virtue of the
foregoing cut-back mechanism, include in any such registration all of the
Registrable Securities requested to be included in such registration, the
Stockholders may, upon written notice to the Company given within three days of
the time the Stockholders first are notified of such matter, reduce the amount
of Registrable Securities they desire to have included in such registration,
whereupon only the Registrable Securities, if any, they desire to have included
will be considered for such inclusion.
3.3 Right of Termination. The Company shall
have the right to terminate or withdraw any registration initiated by it under
Section 3.2 prior to the effectiveness of such registration whether or not the
Stockholders have elected to include Registrable Securities in such
registration.
4. Provisions Applicable to Demand and Piggy-Back
Registrations.
4.1 Expenses. The Company shall pay all
Registration Expenses (as defined in Section 6 hereof) incurred in connection
with any registration pursuant to Section 2 or 3 hereto, unless such
registration fails to become effective as a result of the fault of one or more
Stockholders, in which case the Company will not be required to pay the
Registration Expenses incurred with respect to the offering of such
Stockholder's or Stockholders' Registrable Securities. The Registration Expenses
incurred with respect to the offering of such Stockholder's or Stockholders'
Registrable Securities shall be the product of (a) the aggregate amount of all
Registration Expenses incurred in connection with such registration and (b) the
ratio
<PAGE> 74
5
that the number of such Registrable Securities bears to the total number of
Registrable Securities included in the registration.
4.2 Holdback Agreements. Each Stockholder
agrees not to effect any public sale or distribution of any Registrable
Securities being registered or of any securities convertible into or
exchangeable or exercisable for such Registrable Securities, including a sale
pursuant to Rule 144 under the Act, during the ninety (90) day period beginning
on the effective date of any Demand Registration or Incidental Registration or
other underwritten offering in which such Stockholder is participating (except
as part of such registration), if and to the extent requested by any other
Stockholders, in the case of a non-underwritten public offering, or if and to
the extent requested by the Approved Underwriter or Company Underwriter, in the
case of an underwritten public offering.
5. Registration Procedures.
In connection with any registration statement filed
pursuant to this Agreement, the Company will, as expeditiously as possible:
(a) in connection with a request pursuant to
this Agreement, prepare and file with the Commission, after receipt of a request
to file a registration statement with respect to Registrable Securities, a
registration statement on any form for which the Company then qualifies or which
counsel for the Company shall deem appropriate and which form shall be available
for the sale of such Registrable Securities in accordance with the intended
method of distribution thereof and, if the offering is an underwritten offering,
shall be reasonably satisfactory to the managing underwriter or underwriters,
and use its best efforts to cause such registration statement to become
effective; provided, however, that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company shall (i)
furnish to the counsel selected by the Stockholder or Stockholders making the
demand, if any, copies of all such documents proposed to be filed, and (ii)
notify such counsel and each seller or prospective seller of Registrable
Securities of any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered;
(b) in connection with a registration pursuant
to this Agreement, prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not more than one hundred twenty (120) days (or such shorter period
that will terminate when all Registrable Securities covered by such registration
statement have been disposed of);
(c) furnish to each seller of Registrable
Securities such number of copies of the registration statement, each amendment
and supplement thereto (in each case including all exhibits thereto), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other
<PAGE> 75
6
documents as each seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(d) use reasonable efforts to register or
qualify such Registrable Securities under such other securities or "blue sky"
laws of such jurisdictions as any seller or underwriter reasonably requests in
writing and to do any and all other acts and things that may be reasonably
necessary or advisable to register or qualify for sale in such jurisdictions the
Registrable Securities owned by such seller; provided, however, that the Company
shall not be required to (i) qualify generally to do business in any
jurisdiction where it is not then so qualified, (ii) subject itself to taxation
in any such jurisdiction, (iii) consent to general service of process in any
such jurisdiction or (iv) provide any undertaking required by such other
securities or "blue sky" laws or make any change in its charter or by-laws that
the Board of Directors of the Company determines in good faith to be contrary to
the best interest of the Company and its stockholders;
(e) use reasonable efforts to cause the
Registrable Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable the
seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(f) notify each seller of such Registrable
Securities at any time when a prospectus relating thereto is required to be
delivered under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and prepare and file
with the Commission as soon thereafter as practicable, after consultation with
the Initiating Stockholders, a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading;
(g) enter into customary agreements (including
an underwriting agreement in customary form, if the offering is an underwritten
offering) and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of such Registrable Securities;
(h) otherwise use reasonable efforts to comply
with all applicable rules and regulations of the Commission; and
(i) use reasonable efforts to cause all
Registrable Securities covered by the registration statement to be listed on
each securities exchange or
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7
market, if any, on which similar securities issued by the Company are then
listed, provided that the applicable listing requirements are satisfied.
The Company may require each seller or prospective seller of
Registrable Securities as to which any registration is being effected to furnish
to the Company such information regarding the distribution of such securities
and other matters as may be required to be included in the registration
statement.
Each holder of Registrable Securities agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in paragraph (f) of this Section 5, such holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such holder's receipt of
the copies of the supplemented or amended prospectus contemplated by paragraph
(f) of this Section 5 and, if so directed by the Company, such holder shall
deliver to the Company all copies, other than permanent file copies then in such
holder's possession or copies delivered to prospective purchasers, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice. If the Company shall give any such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective pursuant to this Agreement (including the period referred to in
paragraph (b) of this Section 5) by the number of days during the period from
and including the date of the giving of such notice pursuant to paragraph (f) of
this Section 5 to and including the date when each seller of Registrable
Securities covered by such registration statement shall have received the copies
of the supplemented or amended prospectus contemplated by paragraph (f) of this
Section 5.
6. Registration Expenses. The Company shall pay all expenses
incident to its performance of or compliance with this Agreement; provided,
however, that the Company shall not pay the costs and expenses of any
Stockholder relating to underwriters' commissions and discounts relating to
Registrable Securities to be sold by such Stockholder, brokerage fees, transfer
taxes or the fees or expenses of any counsel, accountants or other
representatives retained by the Stockholders, individually or in the aggregate.
All of the expenses described in this Section 6 that are to be paid by the
Company are herein called the "Registration Expenses."
7. Indemnification; Contribution.
7.1 Indemnification by the Company. The Company
agrees to indemnify, in the case of any registration statement filed pursuant to
this Agreement, each seller of any Registrable Securities covered by such
registration statement, each other person who participates as an underwriter in
the offering or sale of such securities, and each person, if any, who controls
such seller or any such underwriter within the meaning of the Securities Act
(each an "Indemnified Party" and collectively, the "Indemnified Parties")
against any losses, claims, damages or liabilities to which such Indemnified
Party may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
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8
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein in
light of the circumstances in which they were made not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company; provided, however, that the Company shall
not be liable to the extent that any loss, claim, or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Indemnified Party expressly for use in the
Registration Statement; provided, further, that the Company shall not be liable
to any seller of Registrable Securities (or to any person who acts as an
underwriter in such sale or who controls such seller) to the extent that any
loss, claim, or liability arises out of an untrue statement, alleged untrue
statement, omission, or alleged omission made in any preliminary prospectus if
either (a)(i) such seller failed to send or deliver a copy of the prospectus
with or prior to written confirmation of the sale by such seller to the person
asserting the claim and (ii) the prospectus would have corrected such untrue
statement, alleged untrue statement, omission or alleged omission; or (b)(x)
such untrue statement, alleged untrue statement, omission or alleged omission is
corrected in an amendment or supplement to the prospectus and (y) having been
furnished by or on behalf of the Company with copies of the prospectus as so
amended or supplemented, such seller fails to deliver such prospectus as so
amended or supplemented, with or prior to the written confirmation of the sale
by such seller to the person asserting the claim.
7.2 Indemnification by Stockholders. In
connection with any registration statement in which a Stockholder is
participating, each such Stockholder shall furnish to the Company in writing
such information and affidavits with respect to such Stockholder as the Company
reasonably requests for use in connection with any such registration statement
or prospectus and agrees to indemnify, to the fullest extent permitted by law,
the Company, its officers, directors and agents and each person, if any, who
controls the Company (within the meaning of the Securities Act) against any and
all losses, claims, damages, and liabilities resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in any registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein (in the case of a
prospectus, in light of the circumstances under which they were made) not
misleading, to the extent that such untrue or alleged untrue statement or
omission is contained in or omitted from, as the case may be, any information or
affidavit with respect to such Stockholder so furnished in writing by such
Stockholder expressly for use in any such prospectus or preliminary prospectus;
provided, however, that the liability of such Stockholder shall not exceed the
net proceeds received by such Stockholder from the sale of its Registrable
Securities. Each Stockholder also shall indemnify any underwriters of the
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9
Registrable Securities, their officers and directors and each person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the
Company; provided, however, that the indemnification of such Stockholder shall
be limited to the net proceeds received by such Stockholder from the sale of its
Registrable Securities.
7.3 Contribution. If the indemnification
provided for in this Section 7 is unavailable to any Indemnified Party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred to
herein, then the indemnifying party, to the extent such indemnification is
unavailable, in lieu of indemnifying such Indemnified Party, shall contribute to
the amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and Indemnified Parties in
connection with the actions that resulted in such losses, claims, damages,
liabilities or expenses. The relative fault of such indemnifying party and
Indemnified Parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
Indemnified Parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7.3 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person.
8. Definitions. As used herein, the following terms
shall have the following respective meanings:
"Beneficial Ownership" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act.
"Board of Directors" means the board of directors of
the Company.
"Commission" means the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Common Stock" means the common stock of the Company
or any other equity securities of the Company into which such securities are
converted, reclassified, reconstituted or exchanged.
"Person" means any individual, firm, corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company,
<PAGE> 79
10
government (or an agency or political subdivision thereof) or other entity of
any kind, and shall include any successor (by merger or otherwise) of any such
entity.
"Registration Expenses" shall have the meaning
specified in Section 6 herein.
"Securities Act" means the Securities Act of 1933, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Underwritten Offering" shall mean a sale of
securities of the Company to an underwriter or underwriters for re-offering to
the public, which shall include a road show and other customary selling efforts.
9. Miscellaneous.
9.1 Limitations on Subsequent Registration
Rights. From and after the date of this Agreement, the Company shall not,
without the prior written consent of the holders of a majority of the
Registrable Securities then outstanding, enter into any agreement with any
holder or prospective holder of any securities of the Company which would allow
such holder or prospective holder to include such securities in any registration
filed under Section 2.1(a) hereof, unless under the terms of such agreement,
such holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of such securities will not
reduce the amount of the Registrable Securities of the holders which is
included.
9.2 Assignment. The rights of the Stockholders
to have the Company register Registrable Securities pursuant to this Agreement
shall be automatically assignable by each Stockholder to any transferee (other
than the transferee of such shares in a registered transaction) of all or any
portion of the Registrable Securities if: (i) the Stockholder agrees in writing
with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company after such assignment, (ii) the Company is
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned, (iii) the transferee or assignee agrees in
writing for the benefit of the Company to be bound by all of the provisions
contained herein, and (iv) if required under the terms of the Stockholders
Agreement, such transferee enters into the requisite stockholders agreement with
the Company as contemplated by the Stockholders Agreement, of even date
herewith, among the Company and the Stockholders (the "Stockholders Agreement").
9.3 Amendments and Waivers. Except as otherwise
provided herein, the provisions of this Agreement may not be amended, modified
or supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the Company has obtained the written consent of
the
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11
Stockholders that own, in the aggregate, 50% or more of the Registrable
Securities then outstanding.
9.4 Notices. Any notice or other communication
required or permitted hereunder shall be in writing and shall be delivered
personally, telecopied (and confirmed) or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telecopied (and confirmed) or, if mailed, five days (or,
in the case of express mail, one day) after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
CoreComm Limited
110 East 59th Street
26th Floor
New York, NY 10022
Attention: Richard J. Lubasch
Telecopier No.: (212) 906-8497
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Kenneth M. Schneider, Esq.
Telecopier No.: (212) 757-3990
(ii) if to any Stockholder, to the most current
address of such Stockholder provided by such
Stockholder to the Company in writing.
with copies to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: Joseph L. Johnson III, Esq.
Neil McLaughlin, P.C.
Telecopier No.: (617) 523-1231
Any party may by notice given in accordance with this section
to the other parties designate another address or person for receipt of notices
hereunder.
9.5 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Stockholders and their permitted successors
and assigns as provided for in Section 9.1 hereof and the successors and assigns
of the Company; provided, however, that such successors and assigns become
parties to this
<PAGE> 81
12
Agreement by executing counterparts thereto and, in the case of successors and
assigns of a Stockholder, there has been compliance with Section 9.1 hereof.
9.6 Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
9.7 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
9.8 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.
9.9 Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired.
9.10 Entire Agreement. This Agreement is entered into and
delivered pursuant to the Merger Agreement and as such contains the entire
agreements among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, written or oral, with
respect thereto.
<PAGE> 82
13
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the date first written above.
CORECOMM LIMITED
By:_____________________________________
Name:
Title:
STOCKHOLDERS:
MEDIA/COMMUNICATIONS
PARTNERS II LIMITED PARTNERSHIP
By: M/CP II Limited Partnership,
its general partner
By: M/CP II General Partner-H, Inc.,
a general partner
By:_____________________________________
Name:
Title:
MEDIA/COMMUNICATIONS
INVESTORS LIMITED PARTNERSHIP
________________________________________
Name:
APACHE HOLDINGS II LIMITED
PARTNERSHIP
By:_____________________________________
Name:
Title:
<PAGE> 83
14
APACHE HOLDINGS LIMITED
PARTNERSHIP
By:_____________________________________
Name:
Title:
________________________________________
Glenn R. Friedly
________________________________________
Christopher P. Torto
<PAGE> 84
EXHIBIT C
FORM OF STOCKHOLDERS AGREEMENT
AGREEMENT dated as of ________ ___, 2000 among [CoreComm
Limited], a ________ corporation (the "Company"), and each of the Persons listed
on Schedule A hereto (each, a "Stockholder").
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of
March ___, 2000 (the "Merger Agreement"), by and among the Company, [MergerCo],
a Delaware corporation and a wholly-owned subsidiary of the Company
("MergerCo"), and Voyager.net, Inc., a Delaware corporation ("Voyager"),
MergerCo is being merged with and into Voyager (the "Merger") and as a result
thereof each share of Voyager's common stock, par value $.01 per share, issued
and outstanding immediately prior to the effective time of the Merger (the
"Effective Time") is being converted into ___ shares the Company's common stock,
par value $.01 per share (the "Common Stock"), as well as the right to receive
cash; and
WHEREAS, it is a condition to the obligation of the Company to
consummate the Merger, that the Company and each of Stockholders enter into this
Agreement; and
WHEREAS, each Stockholder has independently determined that the
Merger is in its best interest and each Stockholder wishes to facilitate the
consummation of the Merger by entering into this Agreement and agreeing to be
bound by the terms hereof;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements, provisions and covenants herein contained, each Stockholder
and the Company hereby agree as follows:
SECTION 1. COVENANTS OF STOCKHOLDERS WITH RESPECT TO VOTING
SECURITIES OF THE COMPANY.
During the term of this Agreement and subject to all of the
provisions hereof, each Stockholder and the Company agree as follows:
1.1 Acquisition of Voting Securities. Each Stockholder shall not
acquire, agree to acquire or offer or propose to acquire, directly or
indirectly, or in conjunction with or through any Person, record or beneficial
ownership of any Voting Securities (as hereinafter defined), except (i) through
the exercise of conversion rights, if any, of Voting Securities; (ii) by way of
stock splits, reclassifications or stock dividends or other distributions or
offerings made on a pro rata basis to holders of Voting Securities or any class
of Voting Securities; (iii) from another Stockholder by bequest (including,
without limitation, through the creation of a trust), gift, will, pledge,
hypothecation or otherwise in accordance with clause (i) of Section 1.6 hereof;
(iv) pursuant to a bequest or similar gift or transfer from a Person who is not
a Stockholder, including, without limitation, through the creation of a trust
for the
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benefit of a Stockholder; (v) pursuant to a will or the laws of descent and
distribution from a Person who is not a Stockholder; or (vi) pursuant to the
exercise of stock options or the receipt of other compensation or benefits
involving Voting Securities granted to a Stockholder in such Stockholder's
capacity (if applicable) as an employee of the Company or any subsidiary of the
Company; provided, however, that if, in connection with the transfer of Voting
Securities to a Stockholder pursuant to clauses (iv) and (v) of this Section
1.1, a trust, corporation or other entity is formed for the purpose of holding
Voting Securities for the benefit of a Stockholder (other than solely as an
income beneficiary of a trust), then, as a condition precedent to the receipt by
such Stockholder of any direct or indirect beneficial interest in such Voting
Securities, such trust, corporation or other entity shall agree to be bound by
the terms and conditions of a stockholder agreement having the same or
substantially the same terms and conditions as this Agreement.
If a Stockholder shall acquire, directly or indirectly, record or
beneficial ownership of, or the right to acquire, any Voting Securities in
contravention of this Agreement, then such Stockholder shall promptly notify the
Company, and the Company, in its sole discretion, may either (x) purchase (or
cause its designee(s) to purchase) any or all of such acquired Voting Securities
at a price equal to the price paid by such Stockholder or (y) require such
Stockholder to dispose of, within 30 days from the date on which the Company
requests such Stockholder to do so, only in accordance with the provisions of
Section 1.6 (ii) or (iv), the Voting Securities acquired in violation of this
Section 1.1, provided that any sale may be delayed to avoid a violation of
Section 16(b) of the Exchange Act or any other provisions of the Exchange Act or
Securities Act, including, without limitation, any applicable volume limits
under Rule 144 of the Securities Act, or any successor rules or regulations
permitting sales of unregistered or otherwise restricted securities. Each
Stockholder hereby acknowledges that any acquisition of Voting Securities in
contravention of this Agreement shall constitute a breach of this Agreement and
that the Company's right to purchase or require the disposition of Voting
Securities pursuant to this Section 1.1 shall not be exclusive and shall be in
addition to any other rights and remedies the Company may have in connection
with a breach of this Agreement.
For the purposes of this Agreement, "Voting Securities" means all
securities of the Company, or any successor to the Company, entitling the holder
thereof to vote as a stockholder for any purpose or under any circumstance or
any securities convertible into or exchangeable for under any circumstance such
securities or any rights, warrants or options to acquire (through purchase,
exchange, conversion or otherwise) any such securities under any circumstance.
1.2 Voting of Voting Securities. Each Stockholder shall vote or
direct the vote of all Shares of Voting Securities that are (a) acquired
pursuant to the Merger, (b) acquired by a Stockholder pursuant to Section 1.1,
(c) held in trusts, corporations or other entities formed as contemplated by
Section 1.6 or (d) otherwise hereinafter acquired, with respect to which such
Stockholder has the legal capacity to
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vote or to direct the vote of such Voting Securities, on each matter submitted
to a vote of the stockholders of the Company, (x) in the same proportion as the
votes cast by all holders of Voting Securities other than the Stockholders and
any affiliates and associates of the Company, with respect to such matter, or,
(y) in the event of a proposed change of control transaction for the Company, in
the manner recommended to the stockholders by the Board of Directors of the
Company provided that the Board of Directors, prior to such recommendation,
shall have received an opinion from a nationally recognized investment banking
firm to the effect that the transaction or the consideration to be received by
the unaffiliated holders of the Common Stock is fair from a financial point of
view to such stockholders; provided, further, that in the absence of such
opinion such Voting Securities shall be voted as provided in clause (x) of this
Section 1.2.
Each Stockholder shall take such action as may be required so
that all Voting Securities with respect to which such Stockholder has the legal
capacity to vote or to direct the vote of such Voting Securities as provided for
herein shall be present in person or by proxy at all duly noticed and convened
meetings of holders of Voting Securities for the purpose of determining the
presence of a quorum at such meetings.
1.3 No Voting Trusts. No Stockholder shall, directly or
indirectly, deposit any Voting Securities in a voting trust or in any other
manner, except pursuant to this Agreement, subject any Voting Securities to any
arrangement or agreement with respect to the voting thereof.
1.4 No Election Contests. No Stockholder shall, directly or
indirectly, solicit proxies or become a "participant" in a "solicitation" in
opposition to the recommendation of the Company's Board of Directors with
respect to any matter, including, without limitation, any "election contest"
relating to the election of directors of the Company (as such terms are defined
in Regulation 14A under the Exchange Act) or initiate, propose or otherwise
solicit stockholders of the Company for the approval of one or more stockholder
proposals at any time, or induce or attempt to induce any other person to
initiate any stockholder proposal; provided, however, that each Stockholder
shall vote any Voting Securities directly or indirectly beneficially owned by
such Stockholder in any "election contest" in accordance with the provisions of
the first paragraph of Section 1.2 hereof.
1.5 No Syndications. No Stockholder shall, directly or
indirectly, join or encourage the formation of a partnership, limited
partnership, syndicate or other "group," or otherwise act in concert with any
other Person (except as contemplated by Section 1.2 hereof) for the purpose of
affecting or influencing control of the Company or acquiring, holding, or
disposing of Voting Securities.
1.6 Disposition of Voting Securities. No Stockholder shall,
directly or indirectly, offer, sell, assign, pledge, encumber or otherwise
dispose of or transfer in
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<PAGE> 87
any manner any Voting Securities (or enter into agreements or understandings
with respect to the foregoing), if after such disposition, the Person holding
such Voting Securities would own 5% or more of any class or Series of the
Company's Voting Securities (or Voting Securities which are convertible into or
exercisable for shares which, after giving effect to such exercise or
conversion, would represent 5% or more of any class of the Company's Voting
Securities). Any offer, sale, assignment, pledge, encumbrance or other
disposition or transfer of Voting Securities not otherwise prohibited by this
Agreement shall only be effected, to the extent otherwise legally permissible,
in the following manners: (i) pursuant to a bona fide public offering of Voting
Securities (which may include a secondary distribution effected through the
facilities of any national securities exchange on which the Voting Securities
are listed); provided, however, that in case of any such proposed public
offering, each Stockholder selling pursuant to such offering (the "Selling
Stockholder") will use his/her/its best efforts (and will instruct the managing
underwriter of any such public offering or broker-dealer to or through which
such public offering is being made to use its best efforts) to achieve a
sufficiently broad public distribution of the securities being offered (in light
of the number of securities being offered), with the intention that no person or
related group of persons should purchase in such public offering Voting
Securities representing 5% or more of the securities being offered; (ii)
pursuant to an unsolicited open market sale or sales during any three-month
period involving, in the aggregate, Voting Securities representing not more than
1% of the Total Voting Power, as defined in Section 5.4, (in accordance with the
requirements as to the manner of sale set forth in Rules 144(f), 144(g) and 145
and (g) of the Securities Act or any successor rules or regulations permitting
sales of unregistered or otherwise restricted securities, whether or not such
sale is subject to Rule 144, Rule 145 or such successor rules or regulations) on
any national securities exchange on which the Voting Securities are listed;
(iii) pursuant to a tender offer made by the Company or any subsidiary of the
Company or made by a third person to the stockholders of the Company as to which
the Company's Board of Directors has recommended to the stockholders of the
Company; (iv) pursuant to a privately-negotiated transaction with a Person who
is not a Stockholder; provided, that in no case shall any such sale, transfer or
other disposition under this clause (iv) be made to such Person if, immediately
after such transaction, such Person (based upon the written representation of
such Person, which as a condition precedent to such sale, transfer or other
disposition shall be delivered to such Stockholder and to the Company prior to
the consummation of such transaction), together with its affiliates and
associates would be the direct or indirect beneficial or record owner of Voting
Securities (when added to the Voting Securities (if any) already beneficially
owned by such Person and its affiliates and associates) representing in excess
of 5% of the Total Voting Power; (v) pursuant to a will or the laws of descent
and distribution; provided, that the estate of a Stockholder shall be bound by
the terms and conditions of this Agreement and if, immediately after any
distribution out of such estate, any distributee, together with such
distributee's affiliates and associates would (other than solely as an income
beneficiary of a trust) be the direct or indirect beneficial or record owner of,
or have the right to acquire,
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<PAGE> 88
Voting Securities (when added to the Voting Securities (if any) already owned by
such distributee and his/her affiliates and associates representing in excess of
5% of the Total Voting Power, then such distributee shall, as a condition
precedent to receiving such shares of Voting Securities, agree to be bound by
the terms and conditions of a stockholder agreement having the same terms and
conditions as this Agreement; (vi) pursuant to a bequest or similar gift or
transfer to any Person who is not a Stockholder or; provided that if,
immediately after delivery of a bequest or similar gift or transfer, including,
but not limited to, through the creation of a trust, the recipient, together
with such recipient's affiliates and associates (including, as the case may be,
the Stockholder making such transfer), would (other than solely as an income
beneficiary of a trust) be the direct or indirect beneficial or record owner of,
or have the right to acquire, Voting Securities (when added to the Voting
Securities (if any) already owned by such recipient and its affiliates and
associates (including, as the case may be, the Stockholder making such
transfer)) representing in excess of 5% of the Total Voting Power, then such
recipient shall, as a condition precedent to receiving such shares of Voting
Securities, agree to be bound by the terms and conditions of a stockholder
agreement having the same terms and conditions as this Agreement; or (vii) as a
result of any pledge or hypothecation to a bona fide financial institution to
secure a bona fide loan, guaranty or other financial accommodation or as a
result of any foreclosure with respect thereto; provided, however, that in
connection with any transfer by a Stockholder of Voting Securities pursuant to
clauses (v) or (vi) of this Section 1.6 to a trust, corporation or other entity
and a Stockholder retains the authority, as trustee or otherwise, to vote,
acquire or dispose of, or to direct the voting, acquisition or disposition of,
Voting Securities to be held by such trust or other entity, then as a condition
precedent to the transfer of such shares of Voting Securities to such trust or
other entity, such Stockholder shall cause such trust or other entity to be
bound by the terms and conditions of a stockholder agreement having the same or
substantially the same terms and conditions as this Agreement.
Notwithstanding anything to the contrary contained herein, a
Stockholder shall not dispose of or otherwise transfer any Voting Securities in
violation of the provisions of Section 5 of the Securities Act.
1.7 No Solicitation. No Stockholder shall propose, solicit or
participate in any fashion, in any transaction relating to an acquisition of, a
business combination or similar transaction with, or a change of control of, the
Company or make or solicit or encourage any Person to make a tender offer for
Voting Securities.
1.8 Legend on Voting Securities. Each Stockholder agrees that
each certificate representing its Voting Securities shall bear the following
legend, which will remain thereon as long as such Voting Securities are subject
to the restrictions contained in this Agreement:
The shares represented by this certificate are subject to the
provisions of a Stockholder Agreement dated as of ______ ___, 2000,
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<PAGE> 89
among the Company and certain Stockholders, and may not be sold or
transferred except in accordance therewith. Copies of said Agreement are
on file at the offices of the Secretary of the Company.
The Company may enter a stop transfer order with the transfer agent (or agents)
and the registrar (or registrars) of the Voting Securities against the transfer
of legended Voting Securities held by a Stockholder except in compliance with
the requirements of this Agreement. The Company agrees to remove promptly any
stop transfer order with respect to, and issue promptly either legended (if the
Voting Securities remain subject to the restrictions of this Agreement) or
unlegended certificates in substitution for, certificates for any such Voting
Securities that are no longer subject to or are to be transferred in compliance
with the restrictions contained in this Agreement. Without limiting the
generality of the foregoing, the Company shall promptly remove any stop transfer
order in effect with respect to such certificates, upon the delivery to the
Company of an opinion of counsel to a Stockholder, in form and substance
reasonably satisfactory to the Company, that legended certificates representing
Voting Securities are no longer subject to this Agreement or that such Voting
Securities are being transferred in compliance with the provisions of Sections
1.6, and shall promptly issue unlegended certificates in substitution for such
legended certificates, except if such legended certificates are being
transferred pursuant to Section 1.6 to a transferee who shall be bound by the
terms and conditions of a Stockholder Agreement, in which event the Company may
issue legended certificates.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
2.1 Representations and Warranties of the Stockholders. Each
Stockholder represents and warrants to the Company as follows:
(i) At the Effective Time, such Stockholder will be the
record and beneficial owner of the Shares of Common Stock set forth beside its
name on Schedule A hereto (such Stockholder's "Shares") and will be the lawful
owner of such Shares, free and clear of all liens, charges, encumbrances, voting
agreements and commitments of every kind, other than this Agreement. Such
Stockholder has full legal power, authority and right to vote all of such
Stockholder's Shares in the manner required by this Agreement without the
consent or approval of, or any other action on the part of, any other person or
entity.
(ii) The execution, delivery and performance by such
Stockholder of this Agreement has been approved by all necessary action on the
part of such Stockholder.
(iii) This Agreement has been duly executed and delivered
by such Stockholder and constitutes the valid and binding agreement of such
Stockholder, enforceable against the Stockholder in accordance with its terms.
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(iv) The execution, delivery and performance of this
Agreement by such Stockholder does not violate or breach, and will not give rise
to any violation or breach of, any law, contract, instrument, arrangement or
agreement by which such Stockholder is, or any of such Stockholder's Shares are,
bound.
(v) The execution, delivery and performance of this
Agreement by such Stockholder does not create or give rise to any right in any
other Person or entity (other than the Company) with respect to such
Stockholder's Shares or any other Voting Securities.
2.2 Representations and Warranties of the Company. The Company
represents and warrants to each Stockholder as follows:
(i) The execution, delivery and performance by the
Company of this Agreement has been approved by all necessary corporate action on
the part of the Company.
(ii) This Agreement has been duly executed and delivered
by a duly authorized officer of the Company and constitutes a valid and binding
agreement of the Company, enforceable against The Company in accordance with its
terms.
(iii) The execution and delivery of this Agreement by the
Company does not violate or breach, and will not give rise to any violation or
breach of, the charter or bylaws of the Company, or, except as will not
materially impair its ability to effectuate, carry out or comply with all of the
terms of this Agreement, any law, contract, instrument, arrangement or agreement
by which the Company is bound.
2.3 No Indirect Conduct. No Stockholder shall engage in any
conduct or take any action through any agent or any entity acting in concert
with such Stockholder that the Stockholder has hereby agreed not to engage in or
take.
SECTION 3. COVENANTS OF THE COMPANY.
3.1 Registration Rights. During the term and subject to all of
the provisions hereof (including, without limitation Section 1.6(vi)), the
Company agrees to provide registration rights to each Stockholder on the terms
and subject to the provisions set forth in Registration Rights Agreement
attached as Appendix I hereto.
3.2 Access to Management. The Company agrees that so long as a
Stockholder continues to hold 7.5% or more of any class of Voting Securities,
the Company shall provide such Stockholder with an opportunity on a regularly
scheduled basis to review with senior management of the Company, significant
issues facing the Company; provided, however, that such Stockholder shall agree
(i) to maintain the confidentiality of any non-public information disclosed to
such Stockholder in any such session, and (ii) if necessary, refrain from
engaging in any transaction involving the Company's securities (or any other
securities) while in possession of any material
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<PAGE> 91
non-public information about the Company disclosed to such Stockholder by the
Company in the course of the Company's complying with the provisions of this
Section 3.2.
SECTION 4. TERM OF AGREEMENT.
The term of this Agreement shall commence at the Effective Time
and shall terminate with respect to any given Stockholder (but only such
Stockholder) when such Stockholder ceases to hold at least 7.5% of the issued
and outstanding shares of Common Stock (as adjusted for any stock splits, stock
dividends, combinations, recapitalizations, reclassifications or other similar
event) unless the transaction or transactions which resulted in such Stockholder
ceasing to hold at least 7.5% of any Common Stock or Voting Securities shall
have violated the terms of this Agreement. For purposes hereof, ownership of
Common Stock or Voting Securities shall include record ownership of such
securities as well as beneficial ownership thereof within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended.
SECTION 5. MISCELLANEOUS.
5.1 Specific Performance. The Company and each Stockholder
acknowledge and agree that irreparable damage would occur in the event any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
Company or a Stockholder, as the case may be, shall be entitled to an injunction
or injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically, the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction, in addition to any other remedy
to which it may be entitled at law or equity.
5.2 The Term "Company." The term "Company" shall be deemed to
include any successor to the Company by way of merger, consolidation, sale of
assets or otherwise, except as the context otherwise requires, it being the
intention hereof that this Agreement shall continue to be binding on each
Stockholder notwithstanding such merger, consolidation, sale of assets or other
succession, unless the provisions of Section 4.2 of this Agreement shall
otherwise provide.
5.3 The Terms "Affiliate," Associate," "Beneficial Owner"
"Entity," and "Person." As used herein, the term "affiliate" shall have the
meaning set forth in Rule 12b-2 under the Exchange Act; the term "beneficial
owner" (which shall include "beneficially owned" or other similar phrasing as
used herein) shall have the meaning set forth in Section 13(d)(3) of the
Securities Act; the term "associate" shall mean (1) a corporation or
organization (other than the Company or a subsidiary of the Company) of which
such Person (as defined herein) is an officer or partner or is, directly or
indirectly, the beneficial owner of 10 percent or more of any class of
8
<PAGE> 92
equity securities, (2) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar capacity, and (3) any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person; and the term
"Person" shall mean any individual, partnership, corporation, joint venture,
association, unincorporated organization, trust, government or agency thereof,
or any other entity.
5.4 The Term "Total Voting Power." The term "Total Voting Power,"
as used in this Agreement, shall mean the aggregate voting power of all Voting
Securities outstanding at the time of any determination which at such time have
ordinary voting power to vote in the election of directors of the Company. In
determining Total Voting Power for purposes of this Agreement, the Stockholder
may conclusively rely on the most recent reports filed by the Company with the
SEC in which the number of Voting Securities outstanding is set forth or from
which Total Voting Power can reasonably be derived, it being understood that
each Stockholder shall not be considered to be in breach of this Agreement if
he/she has acted in good faith on the basis of a determination of Total Voting
Power as contemplated herein.
5.5 Notices. All notices, requests and other communications to
any person named hereunder shall be in writing (including wire, telex or similar
writing) and shall be given to such person at its address set forth below or
such address or telex number as such person may hereafter specify for the
purpose by notice to the other person:
If to the Company:
CoreComm Limited
110 East 59th Street
26 Floor
New York, NY 10022
Attention: Jared L. Gurfein, Esq.
Copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider, Esq.
Facsimile: 212-757-3990
If to any Stockholder, to the most current address of such
Stockholder provided by such Stockholder to the Company in
writing.
9
<PAGE> 93
Each such notice, request or other communication shall be effective (a) if given
by facsimile, when such facsimile is transmitted to the facsimile number
specified in this subsection and the appropriate answer back is received or (b)
if given by any other means, when actually received at the address specified in
this subsection, provided that a notice given other than during normal business
hours on a business day at the place of receipt shall not be effective until the
opening of business on the next business day.
5.6 Governing Law and Jurisdiction. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE
APPLICABLE TO AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE. THE
UNDERSIGNED HEREBY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURTS
LOCATED WITHIN THE STATE OF DELAWARE, COUNTY OF NEW CASTLE, AND WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY ACTION OR PROCEEDING RELATING HERETO.
5.7 Amendments. This Agreement may be amended, modified or
supplemented only by written agreement of each Stockholder and the Company.
5.8 Waiver. Any failure of any party to comply with any
obligation, covenant, agreement or condition herein may be waived by the party
entitled to the benefit of such obligation, covenant, agreement or condition
only by a written instrument signed by such party, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other non-compliance. Wherever this Agreement requires or permits
consent by or on behalf of any party hereto, such consent shall be given in
writing in a manner consistent with the requirements for a waiver of compliance
as set forth in this Section 5.8.
5.9 Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, including, without
limitation, (i) any person who acquires any interest, beneficial or otherwise,
in Voting Securities by will or pursuant to the laws of descent and distribution
and (ii) any successor trust.
5.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.11 Entire Agreement. This Agreement, including the appendices
referred to herein, embodies the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, representations, warranties, covenants or undertakings,
other than those expressly set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
10
<PAGE> 94
5.12 Severability. If any provision of this Agreement shall be
deemed or declared to be unenforceable, invalid or void, the same shall not
impair any of the other provisions of this Agreement.
5.13 Other Rights and Privileges. Except as otherwise
specifically set forth in this Agreement, each Stockholder shall have and enjoy
all rights and privileges otherwise permitted stockholders of the Company under
applicable law.
IN WITNESS WHEREOF, each Stockholder and the Company have duly
executed this Agreement as of day and year first above written.
CORECOMM LIMITED
By:_____________________________________
Name:
Title:
STOCKHOLDERS:
MEDIA/COMMUNICATIONS
PARTNERS II LIMITED PARTNERSHIP
By: M/CP II Limited Partnership,
its general partners
By: M/CP II General Partner-H, Inc.,
a general partner
By:_____________________________________
Name:
Title:
MEDIA/COMMUNICATIONS
INVESTORS LIMITED PARTNERSHIP
________________________________________
Name:
11
<PAGE> 95
APACHE HOLDINGS II LIMITED
PARTNERSHIP
By:_____________________________________
Glenn R. Friedly, Managing General Partner
APACHE HOLDINGS LIMITED
PARTNERSHIP
By:_____________________________________
Glenn R. Friedly, Managing General Partner
________________________________________
Glenn R. Friedly
________________________________________
Christopher P. Torto
12
<PAGE> 96
VOTING AGREEMENT
VOTING AGREEMENT, dated as of March 12, 2000 (the "Agreement"),
by and among CoreComm Limited, a Bermuda corporation ("Parent"), and the Persons
listed on Schedule A hereto (each, a "Shareholder" and, collectively, the
"Shareholders").
WHEREAS, Voyager.net, Inc., a Delaware corporation (the
"Company"), and Parent propose to enter into an Agreement and Plan of Merger in
the form attached hereto as Exhibit A (as amended, the "Merger Agreement"),
which provides for, among other things, the merger of a wholly owned subsidiary
of Parent with and into the Company (the "Merger");
WHEREAS, as of the date hereof, the Shareholders are holders of
record or Beneficially Own (as defined herein) shares of common stock, par value
$.01 per share ("Company Common Stock"), of the Company; and
WHEREAS, as a condition to the willingness of Parent to enter
into the Merger Agreement, Parent has required that each Shareholder agree, and
in order to induce Parent to enter into the Merger Agreement, each Shareholder
has agreed, to enter into this Agreement with respect to all of the shares of
Company Common Stock now held of record or Beneficially Owned and which may
hereafter be acquired by such Shareholder (collectively, the "Shares").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
<PAGE> 97
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 General. Capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Merger Agreement.
Section 1.2 Beneficial Ownership. For purposes of this
Agreement, "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean "beneficial ownership" of such securities (as determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a
Shareholder shall include securities Beneficially Owned by all other Persons (as
defined in the Merger Agreement) with whom such Person would constitute a
"group" within the meaning of Section 13(d) of the Exchange Act other than
parties to this Agreement.
ARTICLE II
Section 2.1 Voting Agreement. Each of the Shareholders hereby
irrevocably and unconditionally agrees that during the term of this Agreement as
specified in Section 5.1, at any meeting of the shareholders of the Company,
however called, and in any action by consent of the shareholders of the Company,
each of the Shareholders shall vote (or cause to be voted) the Shares held of
record (to the extent such Person also has the right to vote such Shares) or
Beneficially Owned (to the extent such Person also has the right to vote such
Shares) by such Shareholder:
(a) in favor of the Merger, the Merger Agreement
(provided that the Merger Agreement shall not have been amended in a manner
materially adverse to the interests
2
<PAGE> 98
of the Shareholders thereunder) and the transactions contemplated by the Merger
Agreement. Each of the Shareholders acknowledges receipt and review of a copy of
the Merger Agreement.
(b) against any Business Combination (as defined below)
other than the Merger. For purposes of this Agreement, "Business Combination"
shall mean, whether effected in one transaction or a series of transactions, or
(a) any merger, consolidation, reorganization or other business combination
pursuant to which the business of the Company is combined with that of one or
more Persons including, without limitation, any joint venture, in violation of
the Merger Agreement, or (b) the acquisition, directly or indirectly, by another
Person of all or a substantial portion of the assets of, or of any right to all
or a substantial portion of the revenues or income of, the Company by way of a
negotiated purchase, lease, license, exchange, joint venture or other means, in
violation of the Merger Agreement, or (c) the acquisition, directly or
indirectly, by another Person of control of the Company through a proxy contest
or otherwise, in violation of the Merger Agreement, or (d) the acquisition,
directly or indirectly, by another Person of Voting Securities representing more
than 15% of the Total Voting Power of the Company.
Section 2.2 Grant of Irrevocable Proxy. In furtherance and not
in limitation of the foregoing, each Shareholder hereby grants to, and appoints,
the Parent and each of Barclay Knapp and Richard Lubasch in their respective
capacities as officers of the Parent, and any individual who shall hereafter
succeed any such officer of the Parent, and any other designee of the Parent,
each of them individually, its irrevocable proxy and attorney-in-fact (with full
power of substitution and resubstitution) to vote the Shares as indicated in
this Article II. Each Shareholder intends this proxy to be irrevocable and
coupled with an interest and will take such further action and execute such
other instruments as may be necessary to effectuate the intent of this proxy.
3
<PAGE> 99
Section 2.3 The Terms "Total Voting Power" and "Voting
Securities". The term "Total Voting Power," as used in this Agreement, shall
mean the aggregate voting power of all Voting Securities outstanding at the time
of any determination which at such time have ordinary voting power to vote in
the election of directors of the Company. For the purposes of this Agreement,
"Voting Securities" means all securities of the Company, or any successor to the
Company, entitling the holder thereof to vote as a shareholder for any purpose
or under any circumstance or any securities convertible into or exchangeable for
under any circumstance such securities or any rights, warrants or options to
acquire (through purchase, exchange, conversion or otherwise) any such
securities under any circumstance.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each of the Shareholders hereby represents and warrants,
severally and not jointly, to Parent as follows:
Section 3.1 Authority Relative to this Agreement. Such
Shareholder has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. Where such Shareholder is a corporation,
limited liability company, partnership or other entity, the execution and
delivery of this Agreement by such Shareholder and the consummation by such
Shareholder of the transactions contemplated hereby have been duly and validly
authorized by the board of directors or other governing body of such
Shareholder, and no other proceedings on the part of such Shareholder are
necessary to authorize this Agreement or to consummate such transactions. This
Agreement has been duly and validly executed and delivered by such Shareholder
and constitutes a legal, valid and binding obligation of such Shareholder,
enforceable against such Shareholder
4
<PAGE> 100
in accordance with its terms, except to the extent enforceability may be limited
by bankruptcy, insolvency, moratorium or other laws affecting creditors' rights
generally or by general principles governing the availability of equitable
remedies.
Section 3.2 No Conflict.
(a) The execution and delivery of this Agreement by
such Shareholder does not, and the performance of this Agreement by such
Shareholder shall not, (i) where such Shareholder is a corporation, limited
liability company, partnership or other entity, conflict with or violate the
organizational documents of such Shareholder, (ii) conflict with or violate any
agreement, arrangement, law, rule, regulation, order, judgment or decree to
which such Shareholder is a party or by which such Shareholder (or the Shares
held of record or Beneficially Owned by such Shareholder) is bound or affected
or (iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any of the Shares held of record or
Beneficially Owned by such Shareholder pursuant to any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which such Shareholder is a party or by which such
Shareholder (or the Shares held of record or Beneficially Owned by such
Shareholder) is bound or affected, except, in the case of clauses (ii) and (iii)
of this Section 3.2(a), for any such conflicts, violations, breaches, defaults
or other occurrences which would not prevent or delay the performance by such
Shareholder of its obligations under this Agreement.
(b) The execution and delivery of this Agreement by
such Shareholder does not, and the performance of this Agreement by such
Shareholder shall not, require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental
5
<PAGE> 101
entity except for applicable requirements, if any, of the Exchange Act, and
except where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
the performance by such Shareholder of its obligations under this Agreement.
Section 3.3 Title to the Shares. As of the date hereof, such
Shareholder is the record or Beneficial Owner of the number of Shares listed
opposite the name of such Shareholder on Schedule A hereto. The Shares listed
opposite the name of such Shareholder on Schedule A hereto are all the
securities of the Company either held of record or Beneficially Owned by such
Shareholder. Such Shareholder has not appointed or granted any proxy, which
appointment or grant is still effective, with respect to the Shares held of
record or Beneficially Owned by such Shareholder. Each Shareholder has the right
to vote or cause to be voted each of the Shares listed opposite the name of such
Shareholder on Schedule A hereto and such Shares are owned free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on such Shareholder's voting rights, charges and other
encumbrances of any nature whatsoever.
ARTICLE IV
COVENANTS OF THE SHAREHOLDERS
Section 4.1 No Inconsistent Agreement or Action. Each of the
Shareholders hereby covenants and agrees that such Shareholder shall not, or
permit any Person under such Shareholder's control to, enter into any voting
agreement or grant a proxy or power of attorney with respect to the Shares held
of record or Beneficially Owned by such Shareholder or form any "group" for
purposes of the Exchange Act or the rules promulgated thereunder. No Shareholder
shall (i) solicit, initiate, encourage (including by way of furnishing
information or assistance) or take any other action to facilitate, any inquiry
or the making of any proposal
6
<PAGE> 102
which constitutes, or may reasonably be expected to lead to, any Acquisition
Proposals (as defined in the Merger Agreement) or agree to or endorse any
Acquisition Proposal, (ii) propose, enter into or participate in any discussions
or negotiations regarding any of the foregoing, (iii) furnish to any other
Person any information with respect to the Company's business, properties or
assets or (iv) otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other Person to do or seek
any of the foregoing, provided, without limiting any of the obligations of any
Shareholder under this Agreement in his capacity as a shareholder of the
Company, any Shareholder acting solely in his capacity as a director of the
Company may take any of the actions that are expressly permitted by Section 7.1
of Merger Agreement.
Section 4.2 Transfer of Title. Each of the Shareholders hereby
covenants and agrees that such Shareholder shall not (i) tender any Shares, (ii)
sell, assign or transfer record or Beneficial Ownership of any of the Shares, or
(iii) pledge, hypothecate or otherwise dispose of any Shares.
Section 4.3 Stockholders Agreement. Each of the Shareholders
hereby covenants and agrees that each Shareholder that will hold 7.5% or more of
the issued and outstanding shares of common stock of Parent upon consummation of
the Merger shall enter into the Stockholders Agreement substantially in the form
of Exhibit C attached to the Merger Agreement at the closing of the Merger. For
purposes hereof, ownership of Common Stock shall include record ownership of
such securities as well as beneficial ownership thereof within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
7
<PAGE> 103
ARTICLE V
MISCELLANEOUS
Section 5.1 Termination. This Agreement shall be effective as
of the date of this Agreement and shall terminate upon the earliest to occur of:
(i) the closing of the transactions contemplated by the Merger Agreement;
(ii) the date the Merger Agreement is terminated, if such termination is
by the Company pursuant to Section 10.1(h) of the Merger Agreement;
(iii) the date the Merger Agreement is terminated, if such termination is
by mutual consent pursuant to Section 10.1(a) of the Merger Agreement;
(iv) the date the Merger Agreement is terminated, if such termination is
by either Parent or the Company pursuant to Section 10.1(b)(ii) of the
Merger Agreement;
(v) the date the Merger Agreement is terminated, if such termination is by
the Company pursuant to Section 10.1(f);
(vi) the date the Merger Agreement is terminated, if such termination is
by the Company pursuant to Section 10.1(i);
(vii) the date the Merger Agreement is terminated, if such termination is
by either Parent or the Company pursuant to Section 10.1(b)(i) of the
Merger Agreement due to the failure to obtain the required approval of the
stockholders of Parent, which approval is required to be obtained under
Section 9.1(a) of the Merger Agreement; and
(viii) 180 days after the date the Merger Agreement is terminated in
accordance with its terms, other than as set forth in clauses (ii) and
(iii) above.
Section 5.2 Additional Shares. If, after the date hereof, a
Shareholder acquires the right to vote any additional shares of Company Common
Stock (any such shares shall be referred to herein as "Additional Shares"),
including, without limitation, upon exercise of any
8
<PAGE> 104
option, warrant or right to acquire shares of Company Common Stock or through
any stock dividend or stock split, the provisions of this Agreement applicable
to the Shares shall be applicable to such Additional Shares as if such
Additional Shares had been Shares as of the date hereof. The provisions of the
immediately preceding sentence shall be effective with respect to Additional
Shares without action by any Person immediately upon the acquisition by a
Shareholder of record or Beneficial Ownership of such Additional Shares.
Section 5.3 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 5.4 Entire Agreement. This Agreement constitutes the
entire agreement between Parent and the Shareholders with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Parent and the Shareholders with respect to the
subject matter hereof.
Section 5.5 Amendment and Waiver. No alteration, waiver,
amendment or supplement of this Agreement shall be binding or effective unless
the same is set forth in an instrument in writing signed by the parties hereto.
The waiver or failure to insist upon strict compliance with any condition or
provision hereof shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other waiver or failure.
Section 5.6 Severability. If any term or other provision of
this Agreement is held to be invalid, illegal or unenforceable, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of this Agreement is
not affected in any manner materially adverse to any party. Upon such
9
<PAGE> 105
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereby 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 a mutually
acceptable manner in order that the terms of this Agreement remain as originally
contemplated.
Section 5.7 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such state.
Section 5.8 Waiver of Jury Trial. Parent and each Shareholder
hereby irrevocably waives, to the fullest extent permitted by law, all rights to
trial by Jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Agreement or any
of the transactions contemplated hereby.
Section 5.9 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be an original and all of which,
when taken together, shall constitute one and the same instrument.
10
<PAGE> 106
irrevocably waives, to the fullest extent permitted by law, all rights to
trial by Jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Agreement or any
of the transactions contemplated hereby.
Section V.9 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be an original and all of which,
when taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the Shareholders and Parent have
caused this Agreement to be duly executed as of the date first written above.
CORECOMM LIMITED
By: /s/ Richard J. Lubasch
----------------------
Name: Richard J. Lubasch
Title: Senior Vice President--
General Counsel
THE SHAREHOLDERS
MEDIA/COMMUNICATIONS
PARTNERS II LIMITED PARTNERSHIP
By: M/CP II Limited Partnership,
its general partner
By: M/CP II General Partner-H, Inc.,
a general partner
By: /s/ John Hays
---------------------
Name: John Hays
Title:
MEDIA/COMMUNICATIONS I
INVESTORS
LIMITED PARTNERSHIP
By: /s/ John Hays
---------------------
Name: John Hays
Title:
<PAGE> 107
APACHE HOLDINGS II LIMITED
PARTNERSHIP
By: /s/ Glenn R. Friedly
------------------------------
Name: Glenn R. Friedly
Title: Managing General Partner
APACHE HOLDINGS LIMITED
PARTNERSHIP
By: /s/ Glenn R. Friedly
------------------------------
Name: Glenn R. Friedly
Title: Managing General Partner
/s/ Glenn R. Friedly
----------------------------------
Glenn R. Friedly
/s/ Christopher P. Torto
----------------------------------
Christopher P. Torto
<PAGE> 108
SCHEDULE A
<TABLE>
<CAPTION>
Name of Shareholder Number of Shares
- ------------------- ----------------------
<S> <C>
Media/Communications
Partners II Limited Partnership 13,761,243
Media/Communications
Investors Limited Partnership 426,256
Apache Holdings II Limited
Partnership 2,853,078
Apache Holdings Limited Partnership 310,000
Glenn R. Friedly 868,000
Christopher R. Torto 1,994,000
----------
20,212,577
</TABLE>
13
<PAGE> 1
AMENDMENT TO RIGHTS AGREEMENT
AMENDMENT, dated as of January 20, 1999 to the Rights Agreement, dated as
of August 18, 1998, between Corecomm Limited, a Bermuda corporation (the
"Company"), and Continental Stock Transfer & Trust Company, a New York
corporation, as Rights Agent (the "Rights Agent") (the "Rights Agreement").
WHEREAS, no Stock Acquisition Date or Distribution Date, as defined in the
Rights Agreement, has occurred;
WHEREAS, the Company and the Rights Agent entered into the Rights Agreement
specifying the terms of the Rights (as defined therein); and
WHEREAS, the Company and the Rights Agent desire to amend the Rights
Agreement in accordance with Section 27 of the Rights Agreement;
THEREFORE, in consideration of the premises and mutual agreements set forth
in the Rights Agreement and this Amendment, the parties hereby agree as follows:
1. The Rights Agreement is hereby amended as set forth in this Section 1.
(a) Section 1(a) of the Rights Agreement is hereby amended by adding the
following to the end thereof:
"In addition, a Person shall not be deemed an Acquiring Person who has
reported or is required to report such Beneficial Ownership of shares
of Newco Common Stock (but less than 20%) on Schedule 13G under the
Securities and Exchange Act of 1934, as amended and in effect on the
date of the Agreement (the "Exchange Act") (or any comparable or
successor report) or on Schedule 13D under the Exchange Act (or any
comparable or successor report) which Schedule 13D does not state any
intention to or reserve the right to control or influence the
management
<PAGE> 2
or policies of the Company or engage in any of the actions specified
in Item 4 of such schedule (other than the disposition of the
Common Stock) and, within 10 Business Days of being requested by the
Company to advise it regarding the same, certifies to the Company that
such Person acquired shares of Common Stock in excess of 14.9%
inadvertently or without knowledge of the terms of the Rights and who,
together with all Affiliates and Associates, thereafter does not
acquire additional shares of Common Stock while the Beneficial Owner of
15% or more of the shares of Common Stock then outstanding; provided,
however, that if the Person requested to so certify fails to do so
within 10 Business Days, then such Person shall become an Acquiring
Person immediately after such 10-Business-Day period."
1. The term "Agreement" as used in the Rights Agreement shall be deemed to
refer to the Rights Agreement as amended hereby.
2. The foregoing amendment shall be effective as of the date first above
written, and, except as set forth herein, the Rights Agreement shall remain in
full force and effect and shall be otherwise unaffected hereby.
3. This Amendment may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all for which together shall
constitute one and the same instrument.
4. This Amendment shall be deemed to be a contract made under the laws of
the State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
2
<PAGE> 3
IN WITNESS WHEREOF, the partis hereto have caused this Amendment to be duly
executed as of this 20th day of January, 1999.
CORECOMM LIMITED
By: /s/ George S. Blumenthal
----------------------------
Name: George S. Blumenthal
Title: Chairman of the Board
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By: /s/ Michael J. Nelson
----------------------------
Name: Michael J. Nelson
Title: President
3
<PAGE> 1
AMENDMENT NO. 2 TO THE RIGHTS AGREEMENT
AMENDMENT NO. 2 TO THE RIGHTS AGREEMENT ("Amendment No. 2"), dated November
11, 1999, by and between CORECOMM LIMITED, a Bermuda corporation (the
"Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY, a New York
corporation, as Rights Agent ( the "Rights Agent"). This Amendment No. 2 amends
the Rights Agreement (the "Rights Agreement"), dated August 18, 1998, as amended
pursuant to Amendment No. 1 to the Rights Agreement ("Amendment No. 1"), dated
January 20, 1999, in each case, by and between the Company and the Rights Agent.
Capitalized terms used in this Amendment No. 2 without definition shall have the
meanings given to them in the Rights Agreement.
Whereas, the Company and the Rights Agent entered into the Rights Agreement
specifying the terms of the Rights;
Whereas, Section 27 of the Rights Agreement provides, among other things,
that the Company may, prior to the Distribution Date, and the Rights Agent shall
if the Company so directs, supplement or amend any provision of the Rights
Agreement without the approval of any holder of the Rights in accordance with
the provisions of Section 27 of the Rights Agreement; and
Whereas, the Board of Directors of the Company has determined that it is in
the best interests of the Company and its stockholders, to amend the Rights
Agreement as set forth herein.
In consideration of the premises and the mutual agreements set forth herein
and in the Rights Agreement, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Notwithstanding the inclusion of the last sentence of Section 1(a) of
the Rights Agreement pursuant to Amendment No. 1, Section 1(a) of the Rights
Agreement is amended to replace each reference to "15%" in the definition of
"Acquiring Person" with "18%" in each instance where it appears in such section.
2. Section 3(a) of the Rights Agreement is amended to replace the reference
to "15%" with "18%" where it appears in such section.
3. Section 11(a)(ii) of the Rights Agreement is amended to replace each
reference to "15%" with "18%" in each instance where it appears in such
subsection.
<PAGE> 2
4. The term "Agreement" as used in the Rights Agreement shall be deemed to
refer to the Rights Agreement as amended pursuant to Amendment No. 1 and this
Amendment No. 2.
5. This Amendment No. 2 shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
6. This Amendment No. 2 shall be effective as of the date first above
written and, except as set forth herein, the Rights Agreement shall remain in
full force and effect and shall be otherwise unaffected hereby. In the event of
any conflict or inconsistency between the provisions of this Amendment No. 2 on
the one hand and the Rights Agreement and Amendment No. 1 on the other hand,
with respect to matters set forth herein, the provisions of this Amendment No. 2
shall govern.
7. This Amendment may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
be executed by their respective officers thereunto duly authorized, all as of
the date first above written.
ATTEST: CORECOMM LIMITED
By: /s/ Richard J. Lubasch By: /s/ George S. Blumenthal
-------------------------- -----------------------------
Name: Richard J. Lubasch Name: George S. Blumenthal
Title: Senior Vice President- Title: Chairman of the Board
General Counsel
ATTEST: CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By: /s/ Michael J. Nelson By: /s/ Steven Nelson
-------------------------- -----------------------------
Name: Michael J. Nelson Name: Steven Nelson
Title: President Title: Chairman
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<PAGE> 1
EXHIBIT 10.5
CORECOMM LIMITED
1999 STOCK OPTION PLAN
1. PURPOSE; CONSTRUCTION.
This CoreComm Limited 1999 Stock Option Plan (the "Plan"), is intended
to encourage stock ownership by employees and non-employee directors of CoreComm
Limited (the "Corporation") and its divisions and subsidiary corporations and
other affiliates, so that they may acquire or increase their proprietary
interest in the Corporation, and to encourage such employees and directors who
are employees to remain in the employ of the Corporation or its affiliates and
to put forth maximum efforts for the success of the business. It is further
intended that options ("Options") granted by the Committee pursuant to Section 6
of this Plan shall constitute "incentive stock options" ("Incentive Stock
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and the regulations issued thereunder (the "Code"), and
options granted by the Committee pursuant to Section 7 of this Plan shall
constitute "nonqualified stock options" ("Nonqualified Stock Options").
2. DEFINITIONS.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "DISABILITY" shall mean an Optionee's inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less than twelve (12)
months.
(b) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(c) "FAIR MARKET VALUE" per share as of a particular date shall mean
(i) if the shares of common stock, par value $.0l per share, of the Corporation
("Common Stock") are then traded on an over-the-counter market, the average of
the closing bid and asked prices for the shares of Common Stock in such
over-the-counter market for the last preceding date on which there was a sale of
such
<PAGE> 2
Common Stock in such market, (ii) if the shares of Common Stock are then listed
on the Nasdaq Stock Market's National Market or other national securities
exchange, the closing sales price per share on the date of grant or on the last
preceding date on which there was a sale of such Common Stock on such exchange,
or (iii) if the shares of Common Stock are not then traded in an
over-the-counter market or listed on Nasdaq or a national securities exchange,
such value as the Committee in its discretion may determine.
(d) "OPTIONEE" shall mean a person who has been granted an option under
the Plan.
(e) "PARENT CORPORATION" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the employer
corporation if, at the time of granting an Option, each of the corporations
other than the employer corporation owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(f) "RULE 16b-3" shall mean Rule 16b-3 promulgated under Section 16 of
the Exchange Act (or any other comparable provisions in effect at the time or
times in question).
(g) "SUBSIDIARY CORPORATION" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the employer
corporation if, at the time of granting an Option, each of the corporations
other than the last corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(h) "TEN PERCENT STOCKHOLDER" shall mean an Optionee who, at the time
an Incentive Stock Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Corporation or of its Parent or Subsidiary Corporations.
3. ADMINISTRATION.
The Plan shall be administered by the Compensation and Option Committee
of the Corporation's Board of Directors or such other committee appointed either
by the Board of Directors of the Corporation (the "Board") or by such
Compensation and Option Committee (the "Committee"); provided, however, to
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<PAGE> 3
the extent determined necessary to satisfy the requirements for exemption from
Section 16(b) of the Exchange Act, with respect to the acquisition or
disposition of securities hereunder, action by the Committee may be by a
subcommittee of a committee of the Board composed solely of two or more
"non-employee directors," within the meaning of Rule 16b-3, appointed by the
Board or by the Compensation and Option Committee of the Board, or by a
committee composed solely of two or more "non-employee directors," within the
meaning of Rule 16b-3, as a result of the recusal of those members who do not
qualify as non-employee directors; and, provided further, to the extent
determined necessary to satisfy the requirements for the exception for qualified
performance based compensation under Section 162(m) of the Code and the treasury
regulations thereunder, action by the Committee may be by a committee comprised
solely of two or more "outside directors," within the meaning of Section 162(m)
of the Code and the treasury regulations thereunder, appointed by the Board or
by the Compensation and Option Committee. Notwithstanding anything in the Plan
to the contrary, and to the extent determined to be necessary to satisfy an
exemption under Rule 16b-3 with respect to a grant hereunder (and, as
applicable, with respect to the disposition to the Corporation of a security
hereunder), or as otherwise determined advisable by the Committee, the terms of
such grant and disposition under the Plan shall be subject to the prior approval
of the Board. Any prior approval of the Board, as provided in the preceding
sentence, shall not otherwise limit or restrict the authority of the Committee
to make grants under the Plan, including, but not limited to, the authority of
the Committee to make grants qualifying for the performance-based compensation
exception under Section 162(m) of the Code and the treasury regulations
thereunder.
The Committee shall have the authority in its discretion, subject to
and not inconsistent with the express provisions of the Plan, to administer the
Plan and to exercise all the powers and authorities either specifically granted
to it under the Plan or necessary or advisable in the administration of the
Plan, including, without limitation, the authority to grant Options; to
determine which Options shall constitute Incentive Stock Options and which
Options shall constitute Nonqualified Stock Options; to determine the purchase
price of the shares of Common Stock covered by each Option (the "Option Price");
to determine the persons to whom, and the time or times at which, Options shall
be granted; to determine the number of shares to be covered by each Option; to
interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Options
(which need not be identical) entered into in connection with Options granted
under the Plan; and to make all other determinations deemed necessary or
advisable for the administration of the Plan. The Committee may delegate to one
or more of its members or to one or more agents such administrative duties as it
may
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deem advisable, and the Committee or any person to whom it has delegated duties
as aforesaid may employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the Plan.
The Board shall fill all vacancies, however caused, in the Committee.
The Board may from time to time appoint additional members to the Committee, and
may at any time remove one or more Committee members and substitute others. One
member of the Committee may be selected by the Board as chairman. The Committee
shall hold its meetings at such times and places as it shall deem advisable. All
determinations of the Committee shall be made by a majority of its members
either present in person or participating by conference telephone at any meeting
or by written consent. The Committee may appoint a secretary and make such rules
and regulations for the conduct of its business as it shall deem advisable, and
shall keep minutes of its meetings.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Option
granted hereunder.
4. ELIGIBILITY.
Options may be granted (i) to employees (including, without limitation,
officers and directors who are employees) of the Corporation, its present or
future divisions, Subsidiary Corporations and Parent Corporations and (ii) in
the case of Nonqualified Stock Options, to non-employee directors of the
Corporation and to employees of an affiliated entity of the Corporation (an
"Affiliated Entity") which is designated by the Board to participate in the
Plan. In determining the persons to whom Options shall be granted and the number
of shares to be covered by each Option, the Committee shall take into account
the duties of the respective persons, their present and potential contributions
to the success of the Corporation and such other factors as the Committee shall
deem relevant in connection with accomplishing the purpose of the Plan. A person
to whom an option has been granted hereunder is sometimes referred to herein as
an "Optionee."
An Optionee shall be eligible to receive more than one grant of an
Option during the term of the Plan, but only on the terms and subject to the
restrictions hereinafter set forth.
5. STOCK.
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<PAGE> 5
The stock subject to Options hereunder shall be shares of the
Corporation's Common Stock. Such shares may, in whole or in part, be authorized
but unissued shares or shares that shall have been or that may be reacquired by
the Corporation. The aggregate number of shares of Common Stock as to which
Options may be granted from time to time under the Plan shall not exceed
2,500,000. The limitation established by the preceding sentence shall be subject
to adjustment as provided in Section 8(h) hereof.
In the event that any outstanding Option under the Plan for any reason
expires or is cancelled, surrendered or otherwise terminated without having been
exercised in full, the shares of Common Stock allocable to the unexercised
portion of such Option shall (unless the Plan shall have been terminated) become
available for subsequent grants of Options under the Plan. Notwithstanding the
foregoing, the expiration, cancellation, surrender or termination of an Option,
to the extent consistent with Section 162(m) of the Code and the treasury
regulations thereunder, shall not be disregarded for purposes of applying the
individual limit on the maximum number of shares, as provided in Section 8(d),
that may be purchased in connection with Options granted under the Plan with
respect to any individual.
6. INCENTIVE STOCK OPTIONS.
Options granted pursuant to this Section 6 are intended to constitute
Incentive Stock Options and shall be subject to the following special terms and
conditions, in addition to the general terms and conditions specified in Section
8 hereof.
(a) VALUE OF SHARES. In no event may Incentive Stock Options be granted
to an Optionee to the extent that the aggregate Fair Market Value (determined as
of the date the Incentive Stock Option is granted) of the shares of Common Stock
with respect to which such Options granted under this Plan and all other option
plans of the Corporation and any Parent or Subsidiary Corporation which would
become exercisable for the first time by an Optionee during any calendar year
exceeds $100,000.
(b) TEN PERCENT STOCKHOLDER. In the case of an Incentive Stock Option
granted to a Ten Percent Stockholder, (i) the exercise price (the "Option
Price") of an Incentive Stock Option shall not be less than one hundred ten
percent (110%) of the Fair Market Value of the shares of Common Stock of the
Corporation on the date of grant of such Incentive Stock Option, and (ii) the
exercise period shall not exceed five (5) years from the date of grant of such
Incentive Stock Option.
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<PAGE> 6
7. NONQUALIFIED STOCK OPTIONS.
Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Section 8 hereof.
8. TERMS AND CONDITIONS OF OPTIONS.
(a) OPTION PRICE. The Option Price, in the case of Incentive Stock
Options, shall be not less than one hundred percent (100%) of the Fair Market
Value of the shares of Common Stock of the Corporation on the date of grant of
the Option, and, in the case of Nonqualified Stock Options, shall be the price
determined by the Committee. The Option Price shall be subject to adjustment as
provided in Section 8(h) hereof.
(b) MEDIUM AND TIME OF PAYMENT. Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Corporation specifying the number of shares of Common Stock to be
purchased, accompanied by payment of the purchase price. Payment of the purchase
price shall be made in such manner as the Committee may permit, which may
include cash (including cash equivalents, such as by certified or bank check
payable to the Corporation), delivery of unrestricted shares of Common Stock
that have been owned by the Optionee or, as applicable, a transferee (as
provided in Section 8(g)) for at least six months, any other manner permitted by
law as determined by the Committee, or any combination of the foregoing.
(c) TERM AND EXERCISE OF OPTIONS. Options shall be exercisable over the
exercise period as and at the times and upon the conditions that the Committee
may determine; provided, however, that the Committee shall have the authority to
accelerate the exercisability of any outstanding Option at such time and under
such circumstances as it, in its sole discretion, deems appropriate; and further
provided, however, that such exercise period shall not exceed ten (10) years
from the date of grant of such Option. The exercise period may be subject to
earlier termination as provided in Section 8(e) and 8(f) hereof. An Option may
be exercised, as to any or all full shares of Common Stock as to which the
Option has become exercisable, by giving written notice of such exercise to the
Committee or to such individuals) as the Committee may from time to time
designate.
(d) LIMITATION ON AWARDS. Grants of options under the Plan to any
individual in any calendar year shall be limited to Options to purchase no
greater than 2,000,000 shares of Common Stock.
(e) TERMINATION. The Committee may provide that an option may not be
exercised unless the Optionee is then in the employ of the Corporation or a
division or any corporation which was at the time of grant of such
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<PAGE> 7
Option, a Subsidiary Corporation or Parent Corporation thereof (or a corporation
or a Parent or Subsidiary Corporation of such corporation issuing or assuming
the Option in a transaction to which Section 424(a) of the Code applies) or an
Affiliated Entity, and unless the Optionee has remained continuously so employed
since the date of grant of the Option. The Committee may further provide that,
in the event that the employment of such an Optionee shall terminate (other than
by reason of death, Disability or, in the case of Nonqualified Stock Options,
retirement), all Options granted to such Optionee or transferred by such
Optionee (as provided in Section 8(g)) that are exercisable at the time of such
termination may, unless earlier terminated in accordance with their terms, be
exercised within three (3) months after such termination; provided, however,
that if the employment of such an Optionee shall terminate for cause (as
determined by the Committee, in its good faith discretion), all Options
theretofore granted to such Optionee or transferred by such Optionee (as
provided in Section 8(g)) shall, to the extent not theretofore exercised,
terminate forthwith. Nothing in the Plan or in any Option granted pursuant
hereto shall confer upon an individual any right to continue in the employ of
the Corporation or any of its divisions, Parent or Subsidiary Corporations or
Affiliated Entities or interfere in any way with the right of the Corporation or
any such division, Parent or Subsidiary Corporation or Affiliated Entity to
terminate such employment. An Option subject to the provisions of this Section
8(e) is referred to herein as an "Employment Option."
(f) DEATH, DISABILITY OR RETIREMENT OF OPTIONEE. If an Optionee who has
been granted an Employment Option shall die while employed by the Corporation or
a division or any corporation which was, at the time of grant of such Employment
Option, a Subsidiary Corporation or Parent Corporation thereof (or a corporation
or a Parent or Subsidiary Corporation of such corporation issuing or assuming
the Employment Option in a transaction to which Section 424(a) of the Code
applies) or an Affiliated Entity, or within three (3) months after the
termination of such Optionee's employment, other than for cause, or if the
Optionee's employment shall terminate by reason of Disability (or, in the case
of Nonqualified Stock Options, retirement), all Employment Options theretofore
granted to such Optionee or transferred by such Optionee (as provided in Section
8(g)), to the extent otherwise exercisable at the time of death or termination
of employment, may, unless earlier terminated in accordance with their terms, be
exercised by the Optionee or by the Optionee's estate or by a person who
acquired the right to exercise such Employment Option by bequest or inheritance
or otherwise by reason of death or Disability of the Optionee or by a transferee
(as provided in Section 8(g)), at any time within one year after the date of
death, Disability or retirement of the Optionee.
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(g) NONTRANSFERABILITY OF OPTIONS. Except as provided in this Section
8(g) or as otherwise provided by the Board, no Option granted hereunder shall be
transferable by the Optionee to whom granted, other than by will or the laws of
descent or distribution, and the Option may be exercised during the lifetime of
such Optionee only by the Optionee or such Optionee's guardian or legal
representative. Subject to such conditions as the Committee may prescribe, an
Optionee may, upon providing written notice to the General Counsel of the
Corporation, elect to transfer the Nonqualified Stock Option granted to such
Optionee, without consideration therefor, to members of his or her immediate
family (as defined below), to a trust or trusts maintained solely for the
benefit of the Optionee and/or the members of the Optionee and/or the members of
his or her immediate family, or to a partnership whose only partners are the
Optionee and/or the members of his or her immediate family. Any purported
assignment, alienation, pledge, attachment, sale, transfer, or encumbrance that
does not qualify as a permissible transfer under this Section 8(g) shall be void
and unenforceable against the Plan and the Corporation. For purposes of this
Section 8(g), the term "immediate family" shall mean, with respect to a
particular Optionee, the Optionee's spouse, children or grandchildren, and such
other persons as may be determined by the Committee. The terms of any such
Option and the Plan shall be binding upon a permissible transferee, and the
beneficiaries, heirs and successors of the Optionee and, as applicable, a
permissible transferee. Notwithstanding anything in the Plan to the contrary,
the Committee or Board may also provide that certain Options granted pursuant to
the Plan shall be fully and immediately transferable.
(h) EFFECT OF CERTAIN CHANGES.
(1) If there is any change in the number of shares of Common
Stock through the declaration of stock or cash dividends, or
recapitalization resulting in stock splits, or combinations or
exchanges of such shares or other corporate transactions affecting the
capitalization of the Corporation, the aggregate number of shares of
Common Stock available for Options, the aggregate number of shares of
Common Stock available for distribution under the Plan to any single
individual with respect to Options granted hereunder, the number of
such shares covered by outstanding Options, the number of shares set
forth in Section 8(d) hereof and the price per share of such Options
shall be proportionately adjusted by the Committee to reflect any
increase or decrease in the number of issued shares of Common Stock;
provided, however, that any fractional shares resulting from such
adjustment shall be eliminated. In the event of any other extraordinary
corporate transaction,
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including, but not limited to distributions of cash or other property
to the Corporation's shareholders, the Committee may equitably adjust
outstanding Options as it deems appropriate.
(2) In the event of the proposed dissolution or liquidation of
the Corporation, in the event of any corporate separation or division,
including, but not limited to, split-up, split-off or spin-off, or in
the event of a merger or consolidation of the Corporation with another
corporation, the Committee may provide that the holder of each Option
then exercisable shall have the right to exercise such Option (at its
then Option Price) solely for the kind and amount of shares of stock
and other securities, property, cash or any combination thereof
receivable upon such dissolution, liquidation, or corporate separation
or division, or merger or consolidation by a holder of the number of
shares of Common Stock for which such Option might have been exercised
immediately prior to such dissolution, liquidation, or corporate
separation or division, or merger or consolidation; or the Committee
may provide, in the alternative, that each Option granted under the
Plan shall terminate as of a date to be fixed by the Committee;
provided, however, that not less than thirty (30) days' written notice
of the date so fixed shall be given to each Optionee, who shall have
the right, during the period of thirty (30) days preceding such
termination, to exercise the Options (unless earlier terminated in
accordance with their terms) as to all or any part of the shares of
Common Stock covered thereby, including shares as to which such Options
would not otherwise be exercisable; provided, further, that failure to
provide such notice shall not invalidate or affect the action with
respect to which such notice was required.
(3) If while unexercised Options remain outstanding under the
Plan;
(i) any corporation, person or other entity (other than
the Corporation) makes a tender or exchange offer for shares
of the Common Stock pursuant to which purchases are made
("Offer"), or
(ii) the stockholders of the Corporation approve a
definitive agreement to merge or consolidate the Corporation
with or into another corporation or to sell or otherwise
dispose of all or substantially all of its assets, or adopt a
plan of liquidation, or
(iii) the "beneficial ownership" (as defined in Rule
13d-3 under the Exchange Act) of securities representing more
than
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20% of the combined voting power of the Corporation is
acquired by any "person" as defined in Sections 13(d) and
14(d) of the Exchange Act, or
(iv) during any period of two consecutive years,
individuals who at the beginning of such period were members
of the Board cease for any reason to constitute at least a
majority thereof (unless the election, or the nomination for
election by the Corporation's stockholders, of each new
director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the
beginning of such period),
then from and after the date of the first purchase of Common Stock
pursuant to such Offer, or the date of any such stockholder approval or
adoption, or the date on which public announcement of the acquisition
of such percentage shall have been made, or the date on which the
change in the composition of the Board set forth above shall have
occurred, whichever is applicable (the applicable date being referred
to hereinafter as the "Acceleration Date"), all Options shall be
exercisable in full, whether or not otherwise exercisable. Following
the Acceleration Date, the Committee shall, in the case of a merger,
consolidation or sale or disposition of assets, promptly make an
appropriate adjustment to the number and class of shares of Common
Stock available for Options, and to the amount and kind of shares or
other securities or property receivable upon exercise of any
outstanding Options after the effective date of such transaction, and
the price thereof.
(4) Paragraphs (2) and (3) of this Section 8(h) shall not
apply to a merger or consolidation in which the Company is the
surviving corporation and shares of Common Stock are not converted into
or exchanged for stock, securities of any other corporation, cash or
any other thing of value. Notwithstanding the preceding sentence, in
case of any consolidation or merger of another corporation into the
Corporation in which the Corporation is the surviving corporation and
in which there is a reclassification or change (including a change to
the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from par value to no par
value, or as a result of a subdivision or combination, but including
any change in such shares into two or more classes or series of
shares), the Committee may provide that the holder of each Option then
exercisable shall have the right to exercise such Option solely for the
kind and amount of shares of stock and other securities (including
those of any new direct or
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indirect parent of the Corporation), property, cash or any combination
thereof receivable upon such reclassification, change, consolidation or
merger by the holder of the number of shares of Common Stock for which
such Option might have been exercised.
(5) In the event of a change in the Common Stock of the
Corporation as presently constituted, which is limited to a change of
all of its authorized shares with par value into the same number of
shares with a different par value or without par value, the shares
resulting from any such change shall be deemed to be the Common Stock
within the meaning of the Plan.
(6) To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments shall be made
by the Committee, whose determination in that respect shall be final,
binding and conclusive, provided that each Incentive Stock Option
granted pursuant to this Plan shall not be adjusted in a manner that
causes such Option to fail to continue to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code.
(7) Except as hereinbefore expressly provided in this Section
8(h), the Optionee shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any
stock dividend or any other increase or decrease in the number of
shares of stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation or spin-off of assets or stock of
another corporation; and any issue by the Corporation of shares of
stock of any class, or securities convertible into shares of stock of
any class, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to the Option. The grant of an Option pursuant to the Plan
shall not affect in any way the right or power of the Corporation to
make adjustments, reclassifications, reorganizations or changes of its
capital or business structures or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or part of its business or
assets.
(i) RIGHTS AS A STOCKHOLDER. An Optionee or a transferee of an Option
shall have no rights as a stockholder with respect to any shares covered by the
Option until the date of the issuance of a stock certificate to him for such
shares. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distribution of other rights
for which the record date is prior to the date such stock certificate is issued,
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except as provided in Section 8(j) hereof.
(j) OTHER PROVISIONS. The Options authorized under the Plan shall
contain such other provisions, including, without limitation, (i) the imposition
of restrictions upon the exercise of an Option, and (ii) in the case of an
Incentive Stock Option, the inclusion of any condition not inconsistent with
such Option qualifying as an Incentive Stock Option, as the Committee shall deem
advisable. Without limiting the generality of the foregoing, the Committee shall
have the power to grant options with renewable features as hereinafter
described. To the extent an Option with a renewable feature (an "Original
Option") subsequently is exercised (including exercise through delivery of (X)
previously acquired shares of Common Stock, (Y) cash, or (Z) shares acquired
through the exercise of such Original Option), the Optionee automatically will
be granted, at the time of such exercise, a new Option (the "Renewed Option") to
purchase the number of shares of Common Stock so delivered (or, in the case of
an exercise for cash, a number of shares determined by the Committee upon the
grant of the Original Option), provided, however, that no such Renewed Option
shall be granted if, at the time of exercise of the Original Option,
insufficient shares are available under the Plan to cover the grant of the
Renewed Option. Each Renewed Option will be exercisable upon substantially the
same terms and conditions as the Original Option to which it relates, except
that (A) the per share exercise price of the Renewed Option shall be 100% of the
Fair Market Value of the Common Stock on the date of exercise of the Original
Option, and (B) the Renewed Option shall not itself have renewable features.
Notwithstanding the foregoing, the Committee shall have full authority to alter
the terms of any Renewed Option at the time of exercise of the Original Option
to which it relates. The Committee may also provide that a Renewed Option will
be granted to an Optionee upon the sale by such Optionee of an Original Option
to a financial institution acceptable to the Committee, provided, however, that
such financial institution certifies in a form acceptable to the Committee the
intention to immediately exercise the Original Option in accordance with its
terms. A Renewed Option granted pursuant to such a sale shall not itself have
renewable features and will have a per share exercise price of 100% of the Fair
Market Value of the Common Stock on the date of the sale of the Original Option
to such financial institution.
9. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES.
If the Committee shall so require, as a condition of exercise, each
Optionee shall agree that;
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(a) no later than the date of exercise of any Option granted hereunder,
the Optionee will pay to the Corporation or make arrangements satisfactory to
the Committee regarding payment of any federal, state or local taxes of any kind
required by law to be withheld upon the exercise of such Option, and
(b) the Corporation shall, to the extent permitted or required by law,
have the right to deduct federal, state and local taxes of any kind required by
law to be withheld upon the exercise of such Option from any payment of any kind
otherwise due to the Optionee.
10. TERM OF PLAN.
Options may be granted pursuant to the Plan from time to time within a
period of ten (10) years from the date the Plan is adopted by the Board.
11. AMENDMENT AND TERMINATION OF THE PLAN.
The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan; provided, however, that no amendment that requires
stockholder approval under applicable law, under the rules or regulations of any
securities exchange or regulatory agency, or in order for the Plan to continue
to comply with Rule 16b-3 or, if applicable, to comply with the exception for
qualified performance-based compensation under Code Section 162(m), or in order
for Options intended to constitute Incentive Stock Options to satisfy the
requirements of Section 422 of the Code shall be effective unless the same shall
be approved by the requisite vote of the stockholders of the Corporation. Except
as provided in Section 8 hereof, no suspension, termination, modification or
amendment of the Plan may adversely affect any Option previously granted, unless
the written consent of the Optionee or, as applicable, a transferee, is
obtained.
12. INTERPRETATION.
The Plan is designed and intended to comply with Rule 16b-3 and, to the
extent applicable, Sections 162(m) and 422 of the Code, and all provisions
hereof shall be construed in a manner to so comply.
13. APPROVAL AND RATIFICATION BY STOCKHOLDERS.
The Plan shall take effect as set forth in Section 16 upon its adoption
by the Board of Directors, but the Plan (and awards made pursuant to the Plan)
shall be
13
<PAGE> 14
subject to its approval and ratification by the holders of a majority of the
issued and outstanding shares of Common Stock of the Corporation, which approval
and ratification must occur within twelve months after the date that the Plan is
adopted by the Board.
14. EFFECT OF HEADINGS.
The section and subsection headings contained herein are for
convenience only and shall not affect the construction hereof.
14
<PAGE> 15
15. GOVERNING LAW.
The Plan shall be governed by the laws of the State of Delaware.
16. EFFECTIVE DATE OF PLAN.
The effective date of the Plan is the date the Plan is adopted by the
Board.
15
<PAGE> 1
EXHIBIT 11
CORECOMM LIMITED
CALCULATION OF NET (LOSS) PER SHARE
<TABLE>
<CAPTION>
Weighted Average Number of Shares (1)
Date Total Year Ended Year Ended Year Ended
Issued Description of Issuance Outstanding 31-Dec-99 31-Dec-98 31-Dec-97
<S> <C> <C> <C> <C> <C> <C>
Balance 12/31/96 29,451,285 29,451,285 29,451,285 29,451,285
01/03/97 Treasury Stock (45,000) (45,000) (45,000) (44,630)
01/06/97 Treasury Stock (22,500) (22,500) (22,500) (22,130)
01/08/97 Treasury Stock (11,250) (11,250) (11,250) (11,003)
01/17/97 Common Stock 1,877 1,877 1,877 1,789
01/21/97 Common Stock 42,188 42,188 42,188 39,760
03/06/97 Common Stock 468 468 468 385
10/08/97 Common Stock 17,381 17,381 17,381 4,000
11/25/97 Common Stock 1,172 1,172 1,172 116
12/23/97 Common Stock 4,219 4,219 4,219 92
12/30/97 Treasury Stock (11,250) (11,250) (11,250) (31)
12/31/97 Common Stock 232,371 232,371 232,371
02/11/98 Common Stock 187 187 165
04/13/98 Common Stock 4,500 4,500 3,230
---------- ---------- ---------- ----------
05/31/98 Subtotal 29,665,647 29,665,647 29,664,355 29,419,633
07/16/98 Common Stock 9,000 9,000 4,142
07/23/98 Common Stock 2,250 2,250 992
07/24/98 Common Stock 15,750 15,750 6,904
08/13/98 Common Stock 4,500 4,500 1,726
11/02/98 Common Stock 563 563 91
01/26/99 Common Stock 2,250 2,090
02/09/99 Common Stock 704 627
02/23/99 Common Stock 1,350 1,150
02/24/99 Common Stock 28,800 24,460
03/01/99 Common Stock 5,400 4,512
03/02/99 Common Stock 11,925 9,932
03/05/99 Common Stock 3,375 2,783
03/08/99 Common Stock 225 184
03/09/99 Common Stock 38,250 31,124
03/23/99 Common Stock 225 174
04/01/99 Common Stock 6,750 5,067
04/27/99 Common Stock 225 153
04/28/99 Common Stock 13,500 9,136
04/29/99 Common Stock 450,000 303,288
04/30/99 Common Stock 900 604
05/06/99 Common Stock 562,500 368,322
05/07/99 Common Stock 46,517 30,331
05/10/99 Common Stock 11,250 7,243
05/21/99 Common Stock 394 242
05/24/99 Common Stock 384,082 232,554
05/26/99 Common Stock 615,269 369,162
05/28/99 Common Stock 506 301
06/04/99 Common Stock 13,500 7,767
06/08/99 Common Stock 209,930 118,481
06/09/99 Common Stock 1,989,108 1,117,170
06/10/99 Common Stock 5,850 3,270
06/11/99 Common Stock 347,312 193,163
06/14/99 Common Stock 59,063 32,363
06/15/99 Common Stock 445,080 242,660
06/18/99 Common Stock 628,808 337,661
06/22/99 Common Stock 102,150 53,734
06/24/99 Common Stock 84,926 44,208
06/25/99 Common Stock 388,220 201,024
06/28/99 Common Stock 59,659 30,401
06/29/99 Common Stock 2,954 1,497
06/30/99 Common Stock 19,969 10,067
07/01/99 Common Stock 2,954 1,481
07/02/99 Common Stock 25,693 12,811
</TABLE>
<PAGE> 2
EXHIBIT 11
CORECOMM LIMITED
CALCULATION OF NET (LOSS) PER SHARE
<TABLE>
<CAPTION>
Weighted Average Number of Shares (1)
Date Total Year Ended Year Ended Year Ended
Issued Description of Issuance Outstanding 31-Dec-99 31-Dec-98 31-Dec-97
<S> <C> <C> <C> <C> <C> <C>
07/06/99 Common Stock 4,135 2,017
07/07/99 Common Stock 1,181 573
07/08/99 Common Stock 1,181 570
07/20/99 Common Stock 2,239 1,006
07/26/99 Common Stock 1,181 511
07/30/99 Common Stock 900 380
08/03/99 Common Stock 22,671 9,317
08/04/99 Common Stock 4,500 1,837
08/05/99 Common Stock 225 91
08/10/99 Common Stock 4,255 1,667
08/11/99 Common Stock 1,181 460
08/12/99 Common Stock 1,181 456
08/26/99 Common Stock 1,396,573 485,931
08/27/99 Common Stock 272,520 94,075
08/30/99 Common Stock 1,181 398
09/08/99 Common Stock 3,090 965
09/10/99 Common Stock 600 184
09/16/99 Common Stock 141,848 41,194
09/17/99 Common Stock 14,508 4,174
09/20/99 Common Stock 1,182 330
09/24/99 Common Stock 225 60
09/29/99 Common Stock 300 76
10/06/99 Common Stock 50,466 11,891
10/22/99 Common Stock 25,305 4,853
11/01/99 Common Stock 150 25
11/08/99 Common Stock 52,500 7,623
11/15/99 Common Stock 1,482 187
11/22/99 Common Stock 900 96
12/01/99 Common Stock 45,014 3,700
12/17/99 Common Stock 12,825 492
12/20/99 Common Stock 82,591 2,489
12/23/99 Common Stock 115,309 2,527
12/29/99 Common Stock 1,182 6
12/31/99 Common Stock 23,693
_______________________________________________________________________
Total 38,555,556 34,189,068 29,678,210 29,419,633
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Period The Predecessor (Ocom)
from April 1, 1998 ----------------------------------
(date operations For the Period
Year Ended commenced) from January 1, Year Ended
December 31, to December 31, 1998 to May 31, December 31,
1999 1998 1998 1997
<S> <C> <C> <C> <C>
Net loss $(103,524,000) $(16,255,000) $(2,782,000) $(4,379,000)
Basic and diluted net loss per share $(3.03) $(0.55) $(0.09) $(0.15)
</TABLE>
(1) The weighted average number of shares prior to September 1998 are
equivalent to Cellular Communications of Puerto Rico's historical weighted
average shares (since CCPR shareholders received one share of the Company
for each CCPR shared owned).
<PAGE> 1
Exibit 21
SUBSIDIARIES OF CORECOMM LIMITED
All of the corporation below were incorporated in Delaware except where
otherwise noted, and are wholly owned subsidiaries of CoreComm except where
otherwise noted:
CoreComm, Inc.
CoreComm Billing, Inc.
CoreComm Wireless Group Limited (Bermuda)
CoreComm Wireless, Inc.
CoreComm Group Sub I, Inc.
CoreComm Communications, Inc.
CoreComm Newco, Inc.
Prepaid Communications Corp.
FCC Holdco I, Inc.
Cortelyou Communications Corp.
CoreComm Services, Inc.
Digicom, Inc. (Ohio)
CoreComm Internet Group, Inc.
MegsINet, Inc. (Illinois)
MegsINet - CLEC, Inc. (Illinois)
Q.east Holding Limited (Bermuda) (30% owned by CoreComm)
CoreComm Alabama, Inc.
CoreComm Arizona, Inc.
CoreComm Arkansas, Inc.
CoreComm California, Inc.
CoreComm Colorado, Inc.
CoreComm Connecticut, Inc.
CoreComm Delaware, Inc.
CoreComm District of Columbia, Inc.
CoreComm Florida, Inc.
CoreComm Georgia, Inc.
CoreComm Idaho, Inc.
CoreComm Illinois, Inc.
CoreComm Indiana, Inc.
CoreComm Iowa, Inc.
CoreComm Kansas, Inc.
CoreComm Kentucky, Inc.
CoreComm Louisiana, Inc.
CoreComm Maine, Inc.
CoreComm Maryland, Inc.
<PAGE> 2
CoreComm Massachusetts, Inc.
CoreComm Michigan, Inc.
CoreComm Minnesota, Inc.
CoreComm Mississippi, Inc.
CoreComm Missouri, Inc.
CoreComm Montana, Inc.
CoreComm Nebraska, Inc.
CoreComm Nevada, Inc.
CoreComm New Hampshire, Inc.
CoreComm New Jersey, Inc.
CoreComm New Mexico, Inc.
CoreComm New York, Inc.
CoreComm North Carolina, Inc.
CoreComm North Dakota, Inc.
CoreComm Ohio, Inc.
CoreComm Oklahoma, Inc.
CoreComm Oregon, Inc.
CoreComm Pennsylvania, Inc.
CoreComm Rhode Island, Inc.
CoreComm South Carolina, Inc.
CoreComm South Dakota, Inc.
CoreComm Tennessee, Inc.
CoreComm Texas, Inc.
CoreComm Utah, Inc.
CoreComm Vermont, Inc.
CoreComm Virginia, Inc.
CoreComm Washington, Inc.
CoreComm West Virginia, Inc.
CoreComm Wisconsin, Inc.
CoreComm Wyoming, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the (i) Registration Statements
(Form S-8 No. 333-75027, No. 333-96175 and No. 333-96415) of CoreComm Limited
(the "Company") and (ii) Registration Statement (Form S-3 No. 333-90113) of the
Company and in the related Prospectuses of our report dated March 3, 2000, with
respect to the consolidated financial statements and schedule of the Company
included in the Annual Report (Form 10-K) for the year ended December 31, 1999.
ERNST & YOUNG LLP
New York, New York
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-31-1999
<PERIOD-END> JAN-01-1999
<CASH> 86,685,000
<SECURITIES> 92,041,000
<RECEIVABLES> 11,824,000
<ALLOWANCES> (3,949,000)
<INVENTORY> 0
<CURRENT-ASSETS> 5,986,000
<PP&E> 101,726,000
<DEPRECIATION> (11,107,000)
<TOTAL-ASSETS> 392,103,000
<CURRENT-LIABILITIES> 71,295,000
<BONDS> 175,000,000
0
0
<COMMON> 386,000
<OTHER-SE> 126,540,000
<TOTAL-LIABILITY-AND-EQUITY> 392,103,000
<SALES> 0
<TOTAL-REVENUES> 58,151,000
<CGS> 0
<TOTAL-COSTS> 58,561,000
<OTHER-EXPENSES> 83,237,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,341,000
<INCOME-PRETAX> (102,793,000)
<INCOME-TAX> (731,000)
<INCOME-CONTINUING> (103,524,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103,524,000)
<EPS-BASIC> (3.03)
<EPS-DILUTED> (3.03)
</TABLE>
