UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 1-7784
CENTURYTEL, INC.
(Exact name of registrant as specified in its charter)
Louisiana 72-0651161
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Century Park Drive, Monroe, Louisiana 71203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (318) 388-9000
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
As of July 31, 1999, there were 139,510,368 shares of common stock
outstanding.
<PAGE>
CenturyTel, Inc.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Income--Three Months and
Six Months Ended June 30, 1999 and 1998 3
Consolidated Statements of Comprehensive Income --
Three Months and Six Months Ended June 30, 1999 and 1998 4
Consolidated Balance Sheets--June 30, 1999 and
December 31, 1998 5
Consolidated Statements of Stockholders' Equity--
Six Months Ended June 30, 1999 and 1998 6
Consolidated Statements of Cash Flows--
Six Months Ended June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-24
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 24
Part II. Other Information:
Item 4. Submission of Matters To a Vote of Security Holders 24-25
Item 6. Exhibits and Reports on Form 8-K 25-26
Signature 26
<PAGE>
PART I. FINANCIAL INFORMATION
CenturyTel, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
- ------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------
(Dollars, except per share amounts,
and shares expressed in thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Telephone $ 279,113 265,322 572,074 525,135
Cellular 109,932 104,871 208,403 199,037
Other 27,705 18,185 50,529 35,926
- ------------------------------------------------------------------------------------------
Total operating revenues 416,750 388,378 831,006 760,098
- ------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of sales and operating
expenses 200,113 185,406 393,765 367,800
Depreciation and amortization 86,012 81,484 175,993 160,678
- ------------------------------------------------------------------------------------------
Total operating expenses 286,125 266,890 569,758 528,478
- ------------------------------------------------------------------------------------------
OPERATING INCOME 130,625 121,488 261,248 231,620
- ------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Gain on sale or exchange of assets, net 39,601 25,516 49,959 49,859
Interest expense (37,487) (42,072) (79,728) (84,881)
Income from unconsolidated
cellular entities 9,267 9,066 16,112 15,943
Minority interest (18,790) (4,002) (22,100) (6,645)
Other income and expense 3,434 691 5,614 1,295
- ------------------------------------------------------------------------------------------
Total other income (expense) (3,975) (10,801) (30,143) (24,429)
- ------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 126,650 110,687 231,105 207,191
Income tax expense 73,188 46,496 116,538 85,306
- ------------------------------------------------------------------------------------------
NET INCOME $ 53,462 64,191 114,567 121,885
==========================================================================================
BASIC EARNINGS PER SHARE* $ .38 .47 .83 .89
==========================================================================================
DILUTED EARNINGS PER SHARE* $ .38 .46 .81 .87
==========================================================================================
DIVIDENDS PER COMMON SHARE* $ .045 .043 .09 .087
==========================================================================================
AVERAGE BASIC SHARES
OUTSTANDING * 138,852 136,922 138,455 136,686
==========================================================================================
AVERAGE DILUTED SHARES
OUTSTANDING * 141,461 140,028 141,245 139,701
==========================================================================================
* Reflects March 1999 stock split. See Note 4.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CenturyTel, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
- ------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 53,462 64,191 114,567 121,885
- ------------------------------------------------------------------------------------------
Other comprehensive income, net of tax:
Unrealized holding gains arising during
period, net of $1,313, $1,056, $2,430
and $5,891 tax 2,439 1,961 4,512 10,941
Reclassification adjustment for gains
included in net income, net of $-,
$3,060, $3,625 and $11,027 tax - (5,683) (6,733) (20,478)
- ------------------------------------------------------------------------------------------
Other comprehensive income,
net of $1,313, $2,004, $1,195,
and $5,136 tax 2,439 (3,722) (2,221) (9,537)
- ------------------------------------------------------------------------------------------
Comprehensive income $ 55,901 60,469 112,346 112,348
==========================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CenturyTel, Inc.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
- ------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 93,893 5,742
Accounts receivable, less allowance of
$3,535 and $4,155 194,067 185,398
Materials and supplies, at average cost 20,624 23,709
Other 7,450 11,389
- ------------------------------------------------------------------------------------------
316,034 226,238
- ------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 2,181,519 2,351,453
- ------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS
Excess cost of net assets acquired, less accumulated
amortization of $139,657 and $133,135 1,625,044 1,956,701
Other 436,116 401,063
- ------------------------------------------------------------------------------------------
2,061,160 2,357,764
- ------------------------------------------------------------------------------------------
$ 4,558,713 4,935,455
==========================================================================================
LIABILITIES AND EQUITY
- ----------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 53,360 53,010
Accounts payable 113,923 87,627
Accrued expenses and other liabilities
Salaries and benefits 43,015 36,900
Taxes 128,143 33,411
Interest 36,095 36,926
Other 23,532 24,249
Advance billings and customer deposits 32,092 32,721
- ------------------------------------------------------------------------------------------
430,160 304,844
- ------------------------------------------------------------------------------------------
LONG-TERM DEBT 2,017,472 2,558,000
- ------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES 461,930 541,129
- ------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, authorized 350,000,000
shares, issued and outstanding 139,363,490 and
138,082,926 shares 139,363 138,083
Paid-in capital 467,561 451,535
Accumulated other comprehensive income - unrealized
holding gain on investments, net of taxes 4,996 7,217
Retained earnings 1,034,505 932,611
Unearned ESOP shares (5,380) (6,070)
Preferred stock - non-redeemable 8,106 8,106
- ------------------------------------------------------------------------------------------
1,649,151 1,531,482
- ------------------------------------------------------------------------------------------
$ 4,558,713 4,935,455
==========================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CenturyTel, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Six months
ended June 30,
- ------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
COMMON STOCK
Balance at beginning of period $ 138,083 91,104
Issuance of common stock for acquisitions - 28
Conversion of convertible securities into common stock 254 169
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 1,026 499
- ------------------------------------------------------------------------------------------
Balance at end of period 139,363 91,800
- ------------------------------------------------------------------------------------------
PAID-IN CAPITAL
Balance at beginning of period 451,535 469,586
Issuance of common stock for acquisitions - 1,059
Conversion of convertible securities into common stock 3,046 3,131
Issuance of common stock through dividend
reinvestment, incentive and benefit plans 11,475 8,350
Amortization of unearned compensation and other 1,505 1,281
- ------------------------------------------------------------------------------------------
Balance at end of period 467,561 483,407
- ------------------------------------------------------------------------------------------
Accumulated other comprehensive income
Balance at beginning of period 7,217 11,893
Change in unrealized holding gain on investments,
net of reclassification adjustment (2,221) (9,537)
- ------------------------------------------------------------------------------------------
Balance at end of period 4,996 2,356
- ------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 932,611 728,033
Net income 114,567 121,885
Cash dividends declared
Common stock-$.09 and $.0866 per share, respectively * (12,469) (11,864)
Preferred stock (204) (204)
- ------------------------------------------------------------------------------------------
Balance at end of period 1,034,505 837,850
- ------------------------------------------------------------------------------------------
UNEARNED ESOP SHARES
Balance at beginning of period (6,070) (8,450)
Release of ESOP shares 690 1,190
- ------------------------------------------------------------------------------------------
Balance at end of period (5,380) (7,260)
- ------------------------------------------------------------------------------------------
PREFERRED STOCK - NON-REDEEMABLE
Balance at beginning and end of period 8,106 8,106
- ------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 1,649,151 1,416,259
==========================================================================================
* Reflects March 1999 stock split. See Note 4.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CenturyTel, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months
ended June 30,
- ------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 114,567 121,885
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 175,993 160,678
Deferred income taxes 4,345 25,537
Income from unconsolidated cellular entities (16,112) (15,943)
Minority interest 22,100 6,645
Gain on sales of assets (49,959) (49,859)
Changes in current assets and current liabilities:
Accounts receivable (16,392) (20,498)
Accounts payable 8,927 (6,834)
Accrued taxes 30,701 (47,170)
Other current assets and other current
liabilities, net 14,118 14,240
Increase in other non-current assets (23,016) (5,334)
Change in other non-current liabilities (586) 5,551
Other, net 10,073 3,489
- ------------------------------------------------------------------------------------------
Net cash provided by operating activities 274,759 192,387
- ------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Payments for property, plant and equipment (149,128) (122,018)
Acquisitions, net of cash acquired - (5,000)
Proceeds from sales of assets 465,784 132,307
Distributions from unconsolidated cellular entities 10,109 11,647
Payment into escrow for interest in cellular entity (17,614) -
Purchase of life insurance investment (4,405) (5,150)
Other, net 1,511 2,386
- ------------------------------------------------------------------------------------------
Net cash provided by investing activities 306,257 14,172
- ------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 7,954 772,852
Payments of long-term debt (501,087) (938,532)
Payment upon settlement of hedge contracts - (40,237)
Payment of deferred debt issuance costs - (6,625)
Proceeds from issuance of common stock 11,947 8,926
Cash dividends (12,673) (12,068)
Other, net 994 74
- ------------------------------------------------------------------------------------------
Net cash used in financing activities (492,865) (215,610)
- ------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 88,151 (9,051)
Cash and cash equivalents at beginning of period 5,742 26,017
- ------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 93,893 16,966
==========================================================================================
Supplemental cash flow information:
Income taxes paid $ 79,497 118,364
Interest paid $ 80,559 66,718
- ------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CenturyTel, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
(1) Basis of Financial Reporting
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations of
the Securities and Exchange Commission; however, the Company believes the
disclosures which are made are adequate to make the information presented not
misleading. The consolidated financial statements and footnotes included in this
Form 10-Q should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
The unaudited financial information for the three months and six months
ended June 30, 1999 and 1998 has not been audited by independent public
accountants; however, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
results of operations for the three-month and six-month periods have been
included therein. The results of operations for the first six months of the year
are not necessarily indicative of the results of operations which might be
expected for the entire year.
(2) Net Property, Plant and Equipment
Net property, plant and equipment is composed of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
- ------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Telephone, at original cost $ 3,311,544 3,660,252
Accumulated depreciation (1,503,094) (1,661,315)
- ------------------------------------------------------------------------
1,808,450 1,998,937
- ------------------------------------------------------------------------
Cellular, at cost 434,285 428,984
Accumulated depreciation (190,036) (178,569)
- ------------------------------------------------------------------------
244,249 250,415
- ------------------------------------------------------------------------
Corporate and other, at cost 233,451 200,422
Accumulated depreciation (104,631) (98,321)
- ------------------------------------------------------------------------
128,820 102,101
- ------------------------------------------------------------------------
$ 2,181,519 2,351,453
========================================================================
</TABLE>
(3) Earnings from Unconsolidated Cellular Entities
The following summarizes the unaudited combined results of operations of
the cellular entities in which the Company's investments (as of June 30, 1999
and 1998) were accounted for by the equity method.
<TABLE>
<CAPTION>
Six months
ended June 30,
- --------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Results of operations
Revenues $ 642,489 606,793
Operating income $ 195,574 216,062
Net income $ 194,937 216,952
- --------------------------------------------------------------------------
</TABLE>
(4) Stock Split
On February 23, 1999, the Company's Board of Directors declared a
three-for-two common stock split effected as a 50% stock dividend distributed on
March 31, 1999. Shares outstanding and per share data for 1998 have been
restated to reflect this stock split.
(5) Sales of Assets
In the first quarter of 1999 the Company recorded a pre-tax gain
aggregating $10.4 million ($6.7 million after-tax; $.04 per diluted share) due
to the sale of its remaining common shares of MCIWorldCom, Inc.
In May 1999, the Company sold the stock of substantially all of its
Alaska-based operations to Alaska Communications Systems Holdings, Inc. The
Company received approximately $300 million in after-tax cash as a result of the
transaction. No gain or loss was recorded upon the disposition of these
properties.
In June 1999, the Company sold the assets of its cellular operations in
Brownsville and McAllen, Texas to Western Wireless Corporation for approximately
$96 million cash. In connection therewith, the Company recorded a pre-tax gain
of approximately $39.6 million, and an after-tax loss of approximately $7.8
million ($.05 per diluted share.)
(6) Pending Acquisitions
In June 1999, the Company signed a definitive asset purchase agreement to
purchase GTE's telephone access lines (which numbered approximately 213,650 at
December 31, 1998) and related local exchange assets in Arkansas for
approximately $843.4 million cash, subject to certain adjustments. In July 1999,
the Company acquired a 61.5% (56.9% fully-diluted) interest in a newly-organized
joint venture company, which has entered into a definitive asset purchase
agreement to purchase GTE's telephone access lines (which numbered approximately
116,000 at December 31, 1998) and related local exchange assets in Missouri for
approximately $290 million, subject to certain adjustments. At closing, the
Company will make a preferred equity investment in the newly organized company
of approximately $55 million. These transactions are expected to close in the
first quarter of 2000, pending regulatory approvals and certain other closing
conditions.
(7) Business Segments
The Company has two separately reportable business segments: telephone
and cellular. The operating income of these segments is reviewed by the chief
operating decision maker to assess performance and make business decisions.
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
- ------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues
Telephone segment $ 279,113 265,322 572,074 525,135
Cellular segment 109,932 104,871 208,403 199,037
Other operations 27,705 18,185 50,529 35,926
- ------------------------------------------------------------------------------
$ 416,750 388,378 831,006 760,098
==============================================================================
Operating income
Telephone segment $ 83,766 79,954 179,064 156,797
Cellular segment 42,753 37,511 73,136 67,166
Other operations 4,106 4,023 9,048 7,657
- ------------------------------------------------------------------------------
$ 130,625 121,488 261,248 231,620
==============================================================================
Operating income $ 130,625 121,488 261,248 231,620
Gain on sale or exchange
of assets, net 39,601 25,516 49,959 49,859
Interest expense (37,487) (42,072) (79,728) (84,881)
Income from unconsolidated
cellular entities 9,267 9,066 16,112 15,943
Minority interest (18,790) (4,002) (22,100) (6,645)
Other income and expense 3,434 691 5,614 1,295
- ------------------------------------------------------------------------------
Income before income
tax expense $ 126,650 110,687 231,105 207,191
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
- -----------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Total assets
Telephone segment $ 3,137,296 3,674,148
Cellular segment 1,242,961 1,097,789
Other operations 178,456 163,518
- -----------------------------------------------------------------------
Total assets $ 4,558,713 4,935,455
=======================================================================
</TABLE>
<PAGE>
CenturyTel, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") included herein should be read in conjunction with MD&A
and the other information included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998. The results of operations for the three
months and six months ended June 30, 1999 are not necessarily indicative of the
results of operations which might be expected for the entire year.
CenturyTel, Inc. (the "Company"), is a regional diversified
communications company that is primarily engaged in providing local telephone
services and cellular telephone communications services. At June 30, 1999, the
Company's local exchange telephone subsidiaries operated over 1.2 million
telephone access lines primarily in rural, suburban and small urban areas in 20
states, and the Company's majority-owned and operated cellular entities had more
than 640,000 cellular subscribers. On December 1, 1998, the Company acquired
from affiliates of Ameritech Corporation ("Ameritech") telephone operations
serving 86,000 access lines in northern and central Wisconsin and the related
telephone directories for approximately $221 million cash. The operations of the
former Ameritech properties are included in the Company's results of operations
beginning December 1, 1998. On May 14, 1999, the Company sold substantially all
of its Alaska-based operations serving approximately 134,900 telephone access
lines and 3,000 cellular subscribers. On June 1, 1999, the Company sold the
assets of its Brownsville and McAllen, Texas cellular operations serving
approximately 7,500 cellular subscribers. The operations of these disposed
properties are included in the Company's results of operations up to the
respective dates of disposition.
In addition to historical information, management's discussion and
analysis includes certain forward-looking statements regarding events and
financial trends that may affect the Company's future operating results and
financial position. Such forward-looking statements are subject to uncertainties
that could cause the Company's actual results to differ materially from such
statements. Such uncertainties include but are not limited to: the effects of
ongoing deregulation in the telecommunications industry; the effects of greater
than anticipated competition in the Company's markets; possible changes in the
demand for the Company's products and services; the Company's ability to
successfully introduce new offerings on a timely and cost-effective basis; the
risks inherent in rapid technological change; the Company's ability to
effectively manage its growth, including integrating newly acquired properties
into the Company's operations; the success and expense of the remediation
efforts of the Company and its vendors in achieving year 2000 compliance; and
the effects of more general factors such as changes in general market or
economic conditions or in legislation, regulation or public policy. These and
other uncertainties related to the business are described in greater detail in
Item 1 to the Company's Annual Report on Form 10-K for the year ended December
31, 1998. You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to update any of its forward-looking statements for any reason.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 Compared
to Three Months Ended June 30, 1998
Net income (and diluted earnings per share) for the second quarter of
1999 and 1998 was $53.5 million ($.38) and $64.2 million ($.46), respectively.
Net income (excluding the after-tax effect of asset sales) for the second
quarter of 1999 was $61.2 million compared to $49.5 million during the second
quarter of 1998. Diluted earnings per share (excluding the after-tax effect of
asset sales) increased to $.43 during the three months ended June 30, 1999 from
$.35 during the three months ended June 30, 1998, a 22.9% increase.
<TABLE>
<CAPTION>
Three months
ended June 30,
- ---------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------
(Dollars, except per
share amounts,and
shares in thousands)
<S> <C> <C>
Operating income
Telephone $ 83,766 79,954
Cellular 42,753 37,511
Other 4,106 4,023
- ---------------------------------------------------------------------------
130,625 121,488
Gain on sale or exchange of assets, net 39,601 25,516
Interest expense (37,487) (42,072)
Income from unconsolidated cellular entities 9,267 9,066
Minority interest (18,790) (4,002)
Other income and expense 3,434 691
Income tax expense (73,188) (46,496)
- ---------------------------------------------------------------------------
Net income $ 53,462 64,191
===========================================================================
Basic earnings per share $ .38 .47
===========================================================================
Diluted earnings per share $ .38 .46
===========================================================================
Average basic shares outstanding 138,852 136,922
===========================================================================
Average diluted shares outstanding 141,461 140,028
===========================================================================
</TABLE>
Contributions to operating revenues and operating income by the Company's
telephone, cellular, and other operations for the three months ended June 30,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three months
ended June 30,
- ---------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Operating revenues
Telephone operations 67.0% 68.3
Cellular operations 26.4% 27.0
Other operations 6.6% 4.7
Operating income
Telephone operations 64.1% 65.8
Cellular operations 32.7% 30.9
Other operations 3.2% 3.3
- ---------------------------------------------------------------------------
</TABLE>
Telephone Operations
<TABLE>
<CAPTION>
Three months
ended June 30,
- ----------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating revenues
Local service $ 89,452 81,456
Network access 155,789 151,976
Other 33,872 31,890
- ----------------------------------------------------------------------------
279,113 265,322
- ----------------------------------------------------------------------------
Operating expenses
Plant operations 63,492 57,548
Customer operations 24,001 23,033
Corporate and other 38,916 39,225
Depreciation and amortization 68,938 65,562
- ----------------------------------------------------------------------------
195,347 185,368
- ----------------------------------------------------------------------------
Operating income $ 83,766 79,954
============================================================================
</TABLE>
Telephone operating income increased $3.8 million (4.8%) due to an
increase in operating revenues of $13.8 million (5.2%), which more than offset
an increase in operating expenses of $10.0 million (5.4%).
Of the $13.8 million increase in operating revenues, $10.9 million was
attributable to the properties acquired from Ameritech, which was more than
offset by a $14.4 million decrease due to the sale of the Company's Alaska
telephone properties on May 14, 1999. The remaining $17.3 million increase in
revenues was partially due to a $5.6 million increase in local network service
primarily due to an increase in the number of customer access lines; a $2.4
million increase in revenues due to increased minutes of use; a $2.3 million
increase in amounts received from the federal Universal Service Fund; a $1.7
million increase in revenues resulting from revisions of revenue settlement
agreements; and a $1.5 million increase in the partial recovery of increased
operating expenses through revenue sharing arrangements in which the Company
participates with other telephone companies.
Plant operations expenses increased $5.9 million (10.3%), of which $3.1
million was attributable to the properties acquired from Ameritech, offset by a
$4.1 decrease due to the sale of the Alaska properties. The remaining $6.9
million increase was primarily due to a $1.6 million increase in repair and
maintenance expenses; a $2.1 million increase in network operations expenses;
and a $1.3 million increase in expenses associated with the Company's
non-regulated operations.
During the second quarter of 1999 customer operations expenses increased
$968,000 (4.2%) due to a $769,000 increase in salaries and benefits and a
$894,000 increase attributable to the properties acquired from Ameritech. Such
increases were partially offset by a $1.4 million decrease due to the sale of
the Alaska properties.
Corporate and other expenses decreased $309,000 (.8%) primarily due to a
$2.0 million decrease in salaries and benefits and a $2.2 million decrease due
to the sale of the Alaska properties. Such decreases were partially offset by a
$2.1 million increase in contract labor expenses associated with readying the
Company's systems to be year 2000 compliant and a $1.6 million increase in
operating taxes.
Depreciation and amortization increased $3.4 million, of which $3.9
million was attributable to the properties acquired from Ameritech and $3.1
million was due to higher levels of plant in service. Such increases were
partially offset by a $3.9 million reduction in depreciation and amortization
expense related to the Company's Alaska properties.
Cellular Operations and Income From Unconsolidated Cellular Entities
<TABLE>
<CAPTION>
Three months
ended June 30,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating income - cellular operations $ 42,753 37,511
Minority interest, exclusive of the effect
of asset sales (3,864) (4,002)
Income from unconsolidated cellular entities 9,267 9,066
- ------------------------------------------------------------------------------
$ 48,156 42,575
==============================================================================
</TABLE>
The Company's cellular operations (discussed below) reflect 100% of the
results of operations of the cellular entities in which the Company has a
majority ownership interest. The minority interest owners' share of the income
of such entities is reflected in the Company's Consolidated Statements of Income
as an expense in "Minority interest." See Minority Interest for additional
information. The Company's share of earnings from the cellular entities in which
it has less than a majority interest is accounted for using the equity method
and is reflected in the Company's Consolidated Statements of Income as "Income
from unconsolidated cellular entities."
Cellular Operations
<TABLE>
<CAPTION>
Three months
ended June 30,
- -------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating revenues
Service revenues $ 107,405 102,766
Equipment sales 2,527 2,105
- -------------------------------------------------------------------------------
109,932 104,871
- -------------------------------------------------------------------------------
Operating expenses
Cost of equipment sold 5,254 3,702
System operations 14,438 14,633
General, administrative and customer service 18,470 20,063
Sales and marketing 12,922 13,791
Depreciation and amortization 16,095 15,171
- -------------------------------------------------------------------------------
67,179 67,360
- -------------------------------------------------------------------------------
Operating income $ 42,753 37,511
===============================================================================
</TABLE>
Cellular operating income increased $5.2 million (14.0%) to $42.8 million
in the second quarter of 1999 from $37.5 million in the second quarter of 1998.
Cellular operating revenues increased $5.1 million (4.8%) while operating
expenses decreased $181,000 (.3%).
The $4.6 million increase in service revenues was primarily due to a $5.7
million increase in roaming usage which was partially offset by a $1.1 million
decrease in local service revenues.
The following table illustrates the growth in the Company's cellular
customer base in its majority-owned markets:
<TABLE>
<CAPTION>
Three months
ended June 30,
- -----------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Customers at beginning of period 638,992 576,397
Gross units added internally 45,949 43,013
Disconnects 33,623 35,481
Net units added 12,326 7,532
Effect of dispositions (10,563) -
Customers at end of period 640,755 583,929
- -----------------------------------------------------------------------
</TABLE>
The average monthly cellular service revenue per customer declined to $56
during the second quarter of 1999 from $59 during the second quarter of 1998
partially due to the continued trend that a higher percentage of new subscribers
tend to be lower usage customers and pricing rate reductions. The average
monthly service revenue per customer may further decline (i) as market
penetration increases and additional lower usage customers are activated and
(ii) as competitive pressures from current and future wireless communications
providers intensify. The Company is responding to such competitive pressures by,
among other things, modifying certain of its price plans and implementing
certain other plans and promotions, all of which are likely to result in lower
average revenue per customer. The Company will continue to focus on customer
service and attempt to stimulate cellular usage by promoting the availability of
certain enhanced services and by improving the quality of its service through
the construction of additional cell sites and other enhancements to its system.
General, administrative and customer service expenses decreased $1.6
million (7.9%) due to a $2.2 million decrease in the provision for doubtful
accounts which was partially offset by a $607,000 increase in general office
expenses.
The Company's average monthly churn rate (the percentage of cellular
customers that terminate service) was 1.72% for the second quarter of 1999 and
1.97% for the second quarter of 1998.
Sales and marketing expenses decreased $869,000 (6.3%) primarily due to a
$669,000 decrease in advertising and sales promotions expenses and a $497,000
decrease in commissions paid to agents for selling services to new customers
primarily as a result of fewer cellular units being added through this
distribution channel during 1999 as compared to 1998.
Depreciation and amortization increased $924,000 (6.1%) primarily due to
an increase in amortization of intangibles.
Other Operations
<TABLE>
<CAPTION>
Three months
ended June 30,
- --------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating revenues
Long distance $ 19,411 12,338
Call center 3,103 2,349
Other 5,191 3,498
- --------------------------------------------------------------------------
27,705 18,185
- --------------------------------------------------------------------------
Operating expenses
Cost of sales and operating expenses 22,620 13,411
Depreciation and amortization 979 751
- --------------------------------------------------------------------------
23,599 14,162
- --------------------------------------------------------------------------
Operating income $ 4,106 4,023
==========================================================================
</TABLE>
Other operations include the results of operations of subsidiaries of the
Company which are not included in the telephone or cellular segments, including,
but not limited to, the Company's non-regulated long distance and call center
operations. The $7.1 million increase in long distance revenues was primarily
attributable to the growth in the number of customers. The number of long
distance customers as of June 30, 1999 and 1998 was 259,800 and 204,700,
respectively.
Operating expenses increased $9.4 million primarily due to (i) a $4.7
million increase in expenses of the Company's long distance operations due
primarily to an increase in customers and (ii) a $2.5 million increase in
expenses due to expansion of the Company's security, personal communications
services and fiber network businesses.
Interest Expense
Interest expense decreased $4.6 million in the second quarter of 1999
compared to the second quarter of 1998 primarily due to a reduction in
outstanding indebtedness.
Gain on Sale or Exchange of Assets
In the second quarter of 1999, the Company recorded a pre-tax gain of
approximately $39.6 million as a result of the sale of the assets of the
Brownsville and McAllen, Texas cellular properties. See Note 5 of Notes to
Consolidated Financial Statements for additional information and Minority
Interest below.
In the second quarter of 1998, the Company recorded pre-tax gains
aggregating $25.5 million ($14.7 million after-tax; $.11 per diluted share)
primarily as a result of the sale of 750,000 shares of MCIWorldCom, Inc. stock
and the sale of minority interests in two non-strategic cellular entities.
<PAGE>
Minority Interest
Minority interest is the expense recorded by the Company to reflect the
minority interest owners' share of the earnings or loss of the Company's
majority-owned and operated cellular entities and majority-owned subsidiaries.
Minority interest increased $14.8 million primarily due to the minority
partners' share of the gain on sale of assets of the Brownsville and McAllen,
Texas cellular properties.
Other Income and Expense
Other income and expense increased $2.7 million in the second quarter of
1999 compared to the second quarter of 1998, substantially all of which relates
to favorable non-recurring items recorded in the second quarter of 1999.
Income Tax Expense
Income tax expense increased $26.7 million in the second quarter of 1999
compared to the second quarter of 1998. Exclusive of the effects of income tax
expense on asset sales, the effective income tax rate was 40.0% and 41.9% in the
three months ended June 30, 1999 and 1998, respectively. Such decrease in the
effective income tax rate was primarily due to a decrease in non-deductible
amortization of excess cost of net assets acquired (goodwill) attributable to
the sale of the Company's Alaska and Texas properties in the second quarter of
1999.
Six Months Ended June 30, 1999 Compared
to Six Months Ended June 30, 1998
Net income (and diluted earnings per share) for the first six months of
1999 and 1998 was $114.6 million ($.81) and $121.9 million ($.87), respectively.
Net income (excluding the after-tax effect of asset sales) for the first six
months of 1999 was $115.6 million compared to $91.4 million during the first six
months of 1998. Diluted earnings per share (excluding the after-tax effect of
asset sales) increased to $.82 during the six months ended June 30, 1999 from
$.66 during the six months ended June 30, 1998, a 24.2% increase.
<TABLE>
<CAPTION>
Six months
ended June 30,
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
(Dollars, except per
share amounts, and
shares in thousands)
<S> <C> <C>
Operating income
Telephone $ 179,064 156,797
Cellular 73,136 67,166
Other 9,048 7,657
- ------------------------------------------------------------------------------
261,248 231,620
Gain on sale or exchange of assets, net 49,959 49,859
Interest expense (79,728) (84,881)
Income from unconsolidated cellular entities 16,112 15,943
Minority interest (22,100) (6,645)
Other income and expense 5,614 1,295
Income tax expense (116,538) (85,306)
- ------------------------------------------------------------------------------
Net income $ 114,567 121,885
==============================================================================
Basic earnings per share $ .83 .89
==============================================================================
Diluted earnings per share $ .81 .87
==============================================================================
Average basic shares outstanding 138,455 136,686
==============================================================================
Average diluted shares outstanding 141,245 139,701
==============================================================================
</TABLE>
<PAGE>
Contributions to operating revenues and operating income by the Company's
telephone, cellular, and other operations for the six months ended June 30, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
Six months
ended June 30,
- -----------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Operating revenues
Telephone operations 68.8% 69.1
Cellular operations 25.1% 26.2
Other operations 6.1% 4.7
Operating income
Telephone operations 68.5% 67.7
Cellular operations 28.0% 29.0
Other operations 3.5% 3.3
- -----------------------------------------------------------------------
</TABLE>
Telephone Operations
<TABLE>
<CAPTION>
Six months
ended June 30,
- -----------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating revenues
Local service $ 180,109 159,582
Network access 322,944 303,154
Other 69,021 62,399
- -----------------------------------------------------------------------
572,074 525,135
- -----------------------------------------------------------------------
Operating expenses
Plant operations 130,514 114,207
Customer operations 45,895 45,849
Corporate and other 75,835 79,008
Depreciation and amortization 140,766 129,274
- -----------------------------------------------------------------------
393,010 368,338
- -----------------------------------------------------------------------
Operating income $ 179,064 156,797
=======================================================================
</TABLE>
Telephone operating income increased $22.3 million (14.2%) due to an
increase in operating revenues of $46.9 million (8.9%), which more than offset
an increase in operating expenses of $24.7 million (6.7%).
Of the $46.9 million increase in operating revenues, $22.9 million was
attributable to the properties acquired from Ameritech, which was partially
offset by a $11.7 million decrease due to the sale of the Company's Alaska
telephone properties. The remaining $35.7 million increase in revenues was
partially due to a $11.1 million increase in local network service primarily due
to an increase in access lines; a $4.4 million increase resulting from revisions
of revenue settlement agreements; a $4.0 million increase in amounts received
from the federal Universal Service Fund; a $3.0 million increase in the partial
recovery of increased operating expenses through revenue sharing arrangements in
which the Company participates with other telephone companies; a $2.6 million
increase in revenues from the provision of Internet access; and a $2.2 million
increase in revenues due to increased minutes of use.
Plant operations expenses increased $16.3 million (14.3%) of which $5.3
million was attributable to the properties acquired from Ameritech, offset by a
$3.1 million decrease due to the sale of the Alaska telephone properties. The
remaining $14.1 million increase was primarily due to a $4.0 million increase in
repair and maintenance expenses; a $3.6 million increase in network operations
expenses; and a $1.9 million increase in expenses associated with the Company's
non-regulated operations.
Corporate and other expenses decreased $3.2 million (4.0%) due to a $4.1
million decrease in salaries and benefits and a $4.0 million decrease in
expenses due to the sale of the Alaska telephone properties. Such decreases were
partially offset by a $2.3 million increase in expenses attributable to the
Ameritech properties and a $2.4 million increase in contract labor expenses
attributable to readying the Company's systems to be year 2000 compliant.
Depreciation and amortization increased $11.5 million (8.9%) of which
$7.8 million was attributable to the properties acquired from Ameritech and $5.4
million was due to higher levels of plant in service. Such increases were
partially offset by a $3.3 million reduction in depreciation and amortization
expense related to the Company's Alaska properties.
Cellular Operations and Income From Unconsolidated Cellular Entities
<TABLE>
<CAPTION>
Six months
ended June 30,
- ----------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating income - cellular operations $ 73,136 67,166
Minority interest, exclusive of the
effect of asset sales (7,162) (6,645)
Income from unconsolidated cellular entities 16,112 15,943
- ----------------------------------------------------------------------------
$ 82,086 76,464
============================================================================
</TABLE>
The Company's cellular operations (discussed below) reflect 100% of the
results of operations of the cellular entities in which the Company has a
majority ownership interest. The minority interest owners' share of the income
of such entities is reflected in the Company's Consolidated Statements of Income
as an expense in "Minority interest." See Minority Interest for additional
information. The Company's share of earnings from the cellular entities in which
it has less than a majority interest is accounted for using the equity method
and is reflected in the Company's Consolidated Statements of Income as "Income
from unconsolidated cellular entities."
Cellular Operations
<TABLE>
<CAPTION>
Six months
ended June 30,
- -------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating revenues
Service revenues $ 203,381 194,864
Equipment sales 5,022 4,173
- -------------------------------------------------------------------
208,403 199,037
- -------------------------------------------------------------------
Operating expenses
Cost of equipment sold 9,635 7,398
System operations 27,741 28,885
General, administrative and
customer service 37,630 38,444
Sales and marketing 26,935 27,433
Depreciation and amortization 33,326 29,711
- -------------------------------------------------------------------
135,267 131,871
- -------------------------------------------------------------------
Operating income $ 73,136 67,166
===================================================================
</TABLE>
Cellular operating income increased $6.0 million (8.9%) to $73.1 million
in the first six months of 1999 from $67.2 million in the first six months of
1998. Cellular operating revenues increased $9.4 million (4.7%), while operating
expenses increased $3.4 million (2.6%).
The $8.5 million increase in service revenues was primarily due to a $9.4
million increase in roaming usage which was partially offset by a $922,000
decrease in local service revenues.
<PAGE>
The following table illustrates the growth in the Company's cellular
customer base in its majority owned markets:
<TABLE>
<CAPTION>
Six months
ended June 30,
- ------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Customers at beginning of period 624,119 569,983
Gross units added internally 98,931 91,689
Disconnects 71,732 77,743
Net units added 27,199 13,946
Effect of dispositions (10,563) -
Customers at end of period 640,755 583,929
- ------------------------------------------------------------------------
</TABLE>
The average monthly cellular service revenue per customer declined to $53
during the first six months of 1999 from $56 during the first six months of 1998
partially due to the continued trend that a higher percentage of new subscribers
tend to be lower usage customers and pricing rate reductions. The average
monthly service revenue per customer may further decline (i) as market
penetration increases and additional lower usage customers are activated and
(ii) as competitive pressures from current and future wireless communications
providers intensify. The Company is responding to such competitive pressures by,
among other things, modifying certain of its price plans and implementing
certain other plans and promotions, all of which are likely to result in lower
average revenue per customer. The Company will continue to focus on customer
service and attempt to stimulate cellular usage by promoting the availability of
certain enhanced services and by improving the quality of its service through
the construction of additional cell sites and other enhancements to its system.
System operations expenses decreased $1.1 million (4.0%) in the first six
months of 1999 primarily due to a $2.0 million decrease in the net amounts paid
to other carriers for cellular service provided to the Company's customers who
roam in the other carriers' service areas. Such decrease was partially offset by
a $722,000 increase associated with operating a greater number of cell sites.
General, administrative and customer service expenses decreased $814,000
(2.1%) due to a $4.7 million decrease in the provision for doubtful accounts
which was partially offset by a $3.9 million increase in general office
expenses.
The Company's average monthly churn rate (the percentage of cellular
customers that terminate service) was 1.86% for the first six months of 1999 and
2.22% for the first six months of 1998.
Sales and marketing expenses decreased $498,000 (1.8%) due primarily to
$2.0 million reduction in commissions paid to agents for selling services to new
customers primarily as a result of fewer cellular units being added through this
distribution channel during 1999 as compared to 1998. Such decrease was
partially offset by a $1.4 million increase in costs incurred in selling
products and services in retail locations.
Depreciation and amortization increased $3.6 million (12.2%), of which
$1.9 million was attributable to a higher level of plant in service and $2.2
million was due to an increase in amortization of intangibles.
Other Operations
<TABLE>
<CAPTION>
Six months
ended June 30,
- -----------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Operating revenues
Long distance $ 36,441 23,602
Call center 5,547 4,948
Other 8,541 7,376
- -----------------------------------------------------------------------
50,529 35,926
- -----------------------------------------------------------------------
Operating expenses
Cost of sales and operating expenses 39,580 26,576
Depreciation and amortization 1,901 1,693
- -----------------------------------------------------------------------
41,481 28,269
- -----------------------------------------------------------------------
Operating income $ 9,048 7,657
=======================================================================
</TABLE>
Other operations include the results of operations of subsidiaries of the
Company which are not included in the telephone or cellular segments, including,
but not limited to, the Company's non-regulated long distance and call center
operations. The $12.8 million increase in long distance revenues was
attributable to the growth in the number of customers.
Operating expenses increased $13.2 million primarily due to (i) an
increase of $6.9 million in expenses of the Company's long distance operations
due primarily to an increase in customers and (ii) a $3.7 million increase in
expenses due to expansion of the Company's security, personal communication
services and fiber network businesses.
Interest Expense
Interest expense decreased $5.2 million in the first six months of 1999
compared to the first six months of 1998 primarily due to a reduction in
outstanding indebtedness.
Gain on Sale or Exchange of Assets, Net
In the first six months of 1999, the Company recorded pre-tax gains
aggregating $50.0 million. Approximately $10.4 million of the pre-tax gains
($6.7 million after-tax; $.04 per diluted share) was due to the sale of the
Company's remaining common shares of MCIWorldCom, Inc. The remaining $39.6
million of the pre-tax gains ($7.8 million loss after-tax; ($.05) per diluted
share) was due to the sale of the Company's Brownsville and McAllen, Texas
cellular properties. See Note 5 of Notes to Consolidated Financial Statements
for additional information and Minority Interest below.
In the first six months of 1998, the Company recorded pre-tax gains
aggregating $49.9 million ($30.5 million after-tax; $.21 per diluted share)
primarily due to the conversion of its investment in the common stock of Brooks
Fiber Networks, Inc. into common stock of WorldCom, Inc., the subsequent sale of
750,000 shares of WorldCom, Inc. common stock, and the sale of minority
interests in two non-strategic cellular entities.
Minority Interest
Minority interest is the expense recorded by the Company to reflect the
minority interest owners' share of the earnings or loss of the Company's
majority-owned and operated cellular entities and majority-owned subsidiaries.
Minority interest increased $15.5 million primarily due to the minority
partners' share of the gain on sale of assets of the Brownsville and McAllen,
Texas cellular properties.
<PAGE>
Other Income and Expense
Other income and expense increased $4.3 million in the first six months
of 1999 compared to the first six months of 1998, substantially all of which
relates to favorable non-recurring items recorded in 1999.
Income Tax Expense
Income tax expense increased $31.2 million in the first six months of
1999 compared to the first six months of 1998. Exclusive of the effects of
income tax expense on asset sales, the effective income tax rate was 41.0% and
41.9% in the six months ended June 30, 1999 and 1998, respectively. Such
decrease in the effective income tax rate was primarily due to a decrease in
non-deductible amortization of excess cost of net assets acquired (goodwill)
attributable to the sale of the Company's Alaska and Texas properties in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Excluding cash used for acquisitions, the Company relies on cash provided
by operations to provide a substantial portion of its cash needs. The Company's
operations have historically provided a stable source of cash flow which has
helped the Company continue its long-term program of capital improvements.
Net cash provided by operating activities was $274.8 million during the
first six months of 1999 compared to $192.4 million during the first six months
of 1998. The Company's accompanying consolidated statements of cash flows
identify major differences between net income and net cash provided by operating
activities for each of these periods. For additional information relating to the
telephone operations, cellular operations, and other operations of the Company,
see Results of Operations.
Net cash provided by investing activities was $306.3 million for the six
months ended June 30, 1999 compared to $14.2 million for the six months ended
June 30, 1998. Proceeds from the sales of assets were $465.8 million in the
first six months of 1999 compared to $132.3 million in the first six months of
1998. Payments for property, plant and equipment were $27.1 million more in the
first six months of 1999 than in the comparable period during 1998. Capital
expenditures for the six months ended June 30, 1999 were $86.6 million for
telephone, $29.0 million for cellular and $33.5 million for other operations.
Net cash used in financing activities was $492.9 million during the first
six months of 1999 compared to $215.6 million during the first six months of
1998. Net payments of long-term debt were $327.5 million more during the first
six months of 1999 compared to the first six months of 1998, primarily due to
utilization of proceeds received from the sales of assets. During the first six
months of 1998, the Company issued an aggregate of $765 million of senior notes
and debentures. The net proceeds of approximately $758 million were used to
reduce the bank indebtedness incurred in connection with the acquisition of
Pacific Telecom, Inc. In addition, the Company paid approximately $40 million to
settle numerous interest rate hedge contracts that had been entered into in
anticipation of these debt issuances.
Budgeted capital expenditures for 1999 total $215 million for telephone
operations, $70 million for cellular operations and $60 million for corporate
and other operations.
As of June 30, 1999, Century's telephone subsidiaries had available for
use $135.1 million of commitments for long-term financing from the Rural
Utilities Service and the Company had $606.1 million of undrawn committed bank
lines of credit.
In June 1999, the Company signed a definitive asset purchase agreement to
purchase GTE's local exchange assets in Arkansas for approximately $834.4
million in cash. In July 1999, the Company acquired a 61.5% (56.9% fully
diluted) interest in a joint venture company which has entered into a definitive
asset purchase agreement to purchase GTE's local exchange assets in Missouri for
approximately $290 million in cash. At closing, the Company will make
approximately a $55 million preferred equity investment in the new entity. The
purchase price under both agreements is subject to adjustments which are not
expected to be material in the aggregate. Both transactions are anticipated to
close in first quarter 2000, subject to regulatory approvals and certain other
closing conditions. Financing plans are not yet complete and will be dependent
upon the Company's review of its alternatives and market conditions. As a result
of the Company's announcement of these transactions, Moody's placed its ratings
of the Company's debt under review for possible downgrade and Standard & Poor's
placed its ratings of the Company's debt on CreditWatch with negative
implications.
OTHER MATTERS
Accounting for the Effects of Regulation
The Company currently accounts for its regulated telephone operations in
accordance with the provisions of Statement of Financial Accounting Standards
No. 71 ("SFAS 71"), "Accounting for the Effects of Certain Types of Regulation."
While the ongoing applicability of SFAS 71 to the Company's telephone operations
is being monitored due to the changing regulatory, competitive and legislative
environments, the Company believes that SFAS 71 still applies. However, it is
possible that changes in regulation or legislation or anticipated changes in
competition or in the demand for regulated services or products could result in
the Company's telephone operations not being subject to SFAS 71 in the near
future. In that event, implementation of Statement of Financial Accounting
Standards No. 101 ("SFAS 101"), "Regulated Enterprises - Accounting for the
Discontinuance of Application of FASB Statement No. 71," would require the
write-off of previously established regulatory assets and liabilities, along
with an adjustment of certain accumulated depreciation accounts to reflect the
difference between recorded depreciation and the amount of depreciation that
would have been recorded had the Company's telephone operations not been subject
to rate regulation. Such discontinuance of the application of SFAS 71 would
result in a material, noncash charge against earnings which would be reported as
an extraordinary item. While the effect of implementing SFAS 101 cannot be
precisely estimated at this time, management believes that the noncash,
after-tax, extraordinary charge would be between $320 million and $370 million.
Year 2000 Readiness Disclosure
The Year 2000 issue concerns the inability of computer systems and certain
other equipment to properly recognize and process data that uses two digits
rather than four to designate particular years. The Company has initiated a Year
2000 Project Plan ("the Plan") to assess whether its systems that process date
sensitive information will perform satisfactorily leading up to and beyond
January 1, 2000. The goal of the Plan is to correct, prior to January 1, 2000,
any Year 2000-related problem with critical systems, the failure of which could
have a material adverse effect on the Company's operations. The Plan includes
steps to (i) identify each critical system element that requires date code
remediation, (ii) establish a plan to remediate such systems, (iii) implement
all required remediations and (iv) selectively test the remediated systems.
Thus far, the identification phase has identified Year 2000 issues in the
following critical Company-owned systems: (i) switching and transmission
hardware and software used by the Company to route and deliver telephone calls;
(ii) network support systems, including customer service systems, and (iii)
billing and collection systems used by the Company to invoice and process most
of its customer payments. In addition, the Company (i) receives critical
services from providers of utilities and other services to facilities that house
employees and switching, transmission and other equipment and (ii) is dependent
upon outside vendors for, among other things, the provision of critical network
components and cellular billing services. The Company is also critically reliant
upon the systems of other telecommunication carriers with which the Company's
systems interconnect for the routing and delivery of telephone calls. The
Company has also identified potential Year 2000-related liability with respect
to telephone equipment manufactured by unaffiliated parties that the Company has
sold or leased to its customers ("Customer Premises Equipment" or "CPE"). The
identification and planning phases of the Plan are materially complete with
respect to Company-owned systems, third party vendors and CPE customers, and are
substantially complete with respect to other telecommunication carriers.
Based on work completed under the Plan to date, the Company currently
intends to take the following additional steps under its Plan with respect to
Company-owned systems, third-party vendors, other telecommunications carriers,
and CPE customers:
o The Company generally plans to remediate Company-owned switching,
transmission, billing and collection and other critical systems through the
revision or replacement of current system components. Necessary changes to
critical Company-owned systems are substantially complete and are expected
to be finalized by third quarter 1999. The selective testing and
verification of such changes are expected to be completed during 1999. Due
to the large number of system components requiring remediation, the Company
does not intend to test every remediated system but will rely upon the
results of selective testing to determine the effectiveness of remediation
efforts.
o With respect to critical services provided by utilities and other third
parties, the Company contacted all such suppliers during 1998. Thus far, a
majority of those suppliers who have responded have indicated that their
systems and service delivery mechanisms are Year 2000 compliant or can be
made so through currently available modifications. The Company plans to
continue monitoring all third-party remediation efforts and to make
contingency plans for the delivery of such services as necessary.
o The Company has received certain assurances from industry trade data
regarding the Year 2000 readiness of major telecommunications companies with
which the Company's switching systems interconnect. In June 1999, the
Company made specific inquiries with these and other telecommunication
carriers to determine their compliance status, and expects to obtain
information in response thereto during third quarter 1999, although there
can be no assurance that carriers will supply this information.
o Finally, the Company has obtained Year 2000 compliance information from CPE
manufacturers and has provided and will continue to provide this information
to the Company's business customers throughout 1999. The Company plans to
work with CPE manufacturers to encourage the development of remedies for
Year 2000 problems in such equipment and to continue working with its
customers to identify Year 2000 problems in CPE. However, there can be no
assurance that CPE manufacturers or customers will cooperate with the
Company's efforts to address these problems.
While the Company currently believes that it will be able to remediate and
selectively test Company-owned systems in time to minimize any detrimental
effect on its operations, there can be no assurance that such steps will be
successful. Failure by the Company to timely and effectively remediate its
systems, or the failure of critical vendors and suppliers and other
telecommunications carriers to remediate affected systems, could have a material
adverse impact on the Company's business, financial condition, results of
operations and prospects. Because the impact of Year 2000 issues on the Company
is materially dependent on the mitigation efforts of parties outside the
Company's control, the Company cannot assess with certainty the magnitude of any
such potential adverse impact. However, based upon risk assessment work
conducted thus far, the Company believes that the most reasonably likely worst
case scenario of the failure by the Company, its suppliers or other
telecommunications carriers with which the Company interconnects to resolve Year
2000 issues would be an inability by the Company (i) to provide
telecommunications services to the Company's customers, (ii) to route and
deliver telephone calls originating from or terminating with other
telecommunications carriers, (iii) to timely and accurately process service
requests and (iv) to timely and accurately bill its customers. In addition to
lost earnings, these failures could also result in loss of customers due to
service interruptions and billing errors, substantial claims by customers and
increased expenses associated with stabilizing operations and executing
mitigation plans.
Contingency planning to maintain and restore service in the event of
natural disasters, power failures and systems-related problems is a routine part
of the Company's operations. The Company believes that such contingency plans
will assist the Company in responding to the failure by outside service
providers to successfully address Year 2000 issues. In addition, the Company is
currently identifying and considering various Year 2000-specific contingency
plans, including identification of alternate vendors and service providers and
manual alternatives to system operations. These Year 2000-specific contingency
plans are expected to be materially completed in third quarter 1999, but their
review and development will continue throughout 1999.
Although the total costs to implement the Plan cannot be precisely
estimated, the Company incurred costs of $4.2 million during 1998 (none of which
was related to hardware costs and other capital items) and $13.6 million during
the first six months of 1999 ($10.9 million of which was related to hardware
costs and other capital items) and anticipates spending an aggregate of
approximately $17.8 million during the remainder of 1999 (which includes $10.1
million of hardware costs and other capital items.) All costs will be expensed
as incurred, except for hardware and other items that should be capitalized in
accordance with generally accepted accounting principles. Some of the costs
represent ongoing investment in systems upgrades, the timing of which is being
accelerated in order to facilitate Year 2000 compliance. In some instances, such
upgrades will position the Company to provide more and better-quality services
to its customers than they currently receive. The Company expects to fund these
costs with cash provided by operations. Cost estimates and statements of the
Company's plans and expectations discussed above are forward-looking statements
that are derived using numerous assumptions of future events, many of which are
outside the Company's control, including the availability and future cost of
trained personnel and various other resources, third party modification plans,
the absence of systems requiring remediation that have not yet been discovered,
and other factors.
CENTURYTEL, INC.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company is not exposed to material future earnings or cash flow
exposures from changes in interest rates on long-term debt obligations since the
majority of the Company's long-term debt obligations are fixed rate. At June 30,
1999, the fair value of the Company's long-term debt was estimated to be $2.2
billion based on the overall weighted average rate of the Company's long-term
debt of 6.8% and an overall weighted maturity of 13 years compared to terms and
rates currently available in long-term financing markets. For purposes hereof,
market risk is estimated as the potential decrease in fair value of the
Company's long-term debt resulting from a hypothetical increase of 68 basis
points in interest rates (which represents ten percent of the Company's overall
weighted average borrowing rate). Such an increase in interest rates would
result in approximately a $104.6 million decrease in fair value of the Company's
long-term debt. The Company is currently not evaluating the future use of any
derivative financial instruments; however, it is possible that such
instruments may be utilized in connection with financing its acquisitions
of local exchange assets in Arkansas and Missouri.
PART II. OTHER INFORMATION
CENTURYTEL, INC.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareholders on May 6, 1999, the
shareholders elected five Class II directors to serve until the 2002 annual
meeting of shareholders and until their successors are duly elected and
qualified and approved the proposals set forth in the Company's proxy statement
dated March 16, 1999.
The following number of votes were cast for or were withheld from the
following nominees:
Class II Nominees For Withheld
----------------- --- --------
Virginia Boulet 146,421,022 3,553,720
Ernest Butler, Jr. 145,694,683 4,280,059
James B. Gardner 147,149,530 2,825,212
R. L. Hargrove, Jr. 146,658,342 3,316,400
Johnny Hebert 145,225,126 4,749,616
The Class I and Class III directors whose terms continued after the
meeting are:
Class I Class III
------- ---------
William R. Boles, Jr. Calvin Czeschin
W. Bruce Hanks F. Earl Hogan
C. G. Melville, Jr. Harvey P. Perry
Glen F. Post, III. Jim D. Reppond
Clarke M. Williams
The following number of votes were cast in the manner indicated below
with respect to the following proposals:
1. Proposal to increase the number of authorized shares of common
stock from 175 million to 350 million.
For Against Abstain Broker No-Votes
----------- --------- ------- ---------------
146,065,346 3,519,491 389,905 0
2. Proposal to change the Company's name to CenturyTel, Inc.
For Against Abstain Broker No-Votes
----------- --------- ------- ---------------
147,704,657 1,966,025 304,060 0
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
--------
3(i) Amended and Restated Articles of Incorporation of Registrant,
dated as of May 6, 1999.
4.1 Amendment No.1 to Rights Agreement, dated May 25, 1999,
incorporated by reference to Exhibit 4.2(ii) to Registrant's
Report on Form 8-K dated May 25, 1999.
11 Computations of Earnings Per Share.
27.1 Financial Data Schedule as of and for the six months ended
June 30, 1999.
99 Asset Purchase Agreement between Registrant and affiliates of
GTE, dated June 29, 1999.
Pursuant to the regulations of the Securities and Exchange
Commission, all schedules and exhibits to the foregoing
agreement have been intentionally omitted from this report.
The foregoing agreement contains a complete listing of all
schedules and exhibits. The registrant agrees to furnish
supplementary a copy of any omitted schedule or exhibit to
the Securities and Exchange Commission upon request.
B. Reports on Form 8-K
-------------------
(i) The following item was reported in the Form 8-K filed April
30, 1999:
Item 5. Other events - News release announcing first
quarter results of operations.
(ii) The following items were reported in the Form 8-K filed
May 28, 1999:
Item 5. Other Events - (i) adjusted terms of CenturyTel's
Rights Agreement to reflect the three-for-two stock split
in the form of a 50% stock dividend and (ii) an amendment
to CenturyTel's Rights Agreement which increased the
purchase price per 1/225 of a Preference Share from $48.88
to $135.00.
(iii) The following item was reported in the Form 8-K filed
July 9, 1999:
Item 5. Other Events - News release announcing execution
of a definitive agreement to purchase from an affiliate of
GTE Corporation assets comprising substantially all of
GTE's local telephone operations in Arkansas.
(iv) The following item was reported in the Form 8-K filed
July 9,1999:
Item 5. Other Events - News release announcing execution of
a definitive agreement to enter into a strategic partnership
with various co-investors to purchase telephone access lines
in Missouri from an affiliate of GTE Corporation.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CenturyTel, Inc.
Date: August 16, 1999 /s/ Neil A. Sweasy
----------------------------
Neil A. Sweasy
Vice President and Controller
(Principal Accounting Officer)
Exhibit 3(i)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
of
CENTURYTEL, INC.
(formerly Century Telephone Enterprises, Inc.)
The undersigned Corporation, acting through its President and Secretary
and by authority of its Board of Directors, does hereby certify as of May 6,
1999 that:
FIRST: The Amended and Restated Articles of Incorporation set forth in
Paragraph Fifth below accurately set forth the articles of incorporation of the
Corporation and all amendments thereto in effect on the date hereof, including
the changes made in the manner described in Paragraph Fourth below.
SECOND: All such amendments have been effected in conformity with law.
THIRD: The date of incorporation of the Corporation was April 30, 1968,
and the date of these Amended and Restated Articles of Incorporation is May 6,
1999.
FOURTH: On February 23, 1999, the Board of Directors of the Corporation,
at a duly-convened regular meeting of the Board of Directors, unanimously
adopted resolutions to (i) amend the Corporation's articles of incorporation to
increase the number of authorized shares of the Corporation's common stock and
to change the Corporation's name and (ii) restate the Corporation's articles of
incorporation, in each case in the manner described further below. On May 6,
1999, the shareholders of the Corporation, at a duly-convened annual
shareholders' meeting at which there were present or duly represented a quorum
of the holders of the Corporation's total voting power, adopted resolutions to
amend the Corporation's articles of incorporation as in effect prior to the date
thereof, with each such resolution receiving not less than 146,065,346
affirmative votes, not more than 3,519,491 negative votes and not more than
389,905 votes as to which the shareholders abstained from voting. Pursuant to
these proceedings, the Corporation's articles of incorporation have been
modified to (i) amend Article III(A) to increase the number of authorized shares
of common stock from 175 million to 350 million, (ii) amend Article I to change
the Corporation's name from Century Telephone Enterprises, Inc. to CenturyTel,
Inc., and (iii) restate the articles of incorporation to reflect the
above-described amendments, to delete paragraph F of Article III, which
heretofore set forth the terms of the Corporation's Series K Preferred Stock, to
amend Article III(F)(2) (heretofore numbered Article III(G)(2)) to clarify the
ranking of the Series L Preferred Stock, and to renumber the articles of
incorporation to reflect the deleted sections.
FIFTH: The Amended and Restated Articles of Incorporation of the
Corporation are as follows:
ARTICLE I
Name
The name of this Corporation is CenturyTel, Inc.
ARTICLE II
Purpose
The purpose of the Corporation is to engage in any lawful activity for
which corporations may be formed under the Business Corporation Law of
Louisiana.
ARTICLE III
Capital
A. Authorized Stock. The Corporation shall be authorized to issue an
aggregate of 352 million shares of capital stock, of which 350 million shares
shall be Common Stock, $1.00 par value per share, and two million shares shall
be Preferred Stock, $25.00 par value per share.
B. Preferred Stock. (1) The Preferred Stock may be issued from time to
time in one or more series.
(2) In respect to any series of Preferred Stock, the Board of
Directors is hereby authorized to fix or alter the dividend rights, dividend
rates, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, and the
liquidation preferences of any wholly unissued series of Preferred Stock,
and the number of shares constituting any such series and the designation
thereof, or any of them; and to increase or decrease the number of shares of
any series subsequent to the issue of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series. In addition thereto the
Board of Directors shall have such other powers with respect to the Preferred
Stock and any series thereof as shall be permitted by applicable law.
(3) No full dividend for any quarterly dividend period may be
declared or paid on shares of any series of Preferred Stock unless the full
dividend for that period shall be concurrently declared or paid on all serie
of Preferred Stock outstanding in accordance with the terms of each series.
If there are any accumulated dividends accrued or in arrears on any share of any
series of Preferred Stock those dividends shall be paid in full before any full
dividend shall be paid on any other series of Preferred Stock. If less than a
full dividend is to be paid, the amount of the dividend to be distributed shall
be divided among the shares of Preferred Stock for which dividends are accrued
or in arrears in proportion to the aggregate amounts which would be
distributable to those holders of Preferred Stock if full cumulative dividends
had previously been paid thereon in accordance with the terms of each series.
C. Voting Rights. Each share of Common Stock and each outstanding
share of the Series H Preferred Stock ("Voting Preferred Stock") which has been
beneficially owned continuously by the same person since May 30, 1987 will
entitle such person to ten votes with respect to such share on each matter
properly submitted to the shareholders of the Corporation for their vote,
consent, waiver, release or other action when the holders of Common Stock and
voting shares of Preferred Stock vote together with respect to such matter.
(2) (a) For purposes of this paragraph C, a change in beneficial
ownership of a share of the Corporation's stock shall be deemed to have occurred
whenever a change occurs in any person or group of persons who, directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise has or shares voting power, which includes the power to vote, or to
direct the voting of, such share; investment power, which includes the power to
direct the sale or other disposition of such share; the right to receive or
retain the proceeds of any sale or other disposition of such share; or the right
to receive distributions, including cash dividends, in respect to such share.
(b) In the absence of proof to the contrary provided in
accordance with the procedures referred to in subparagraph (4) of this paragraph
C, a change in beneficial ownership shall be deemed to have occurred whenever a
share of stock is transferred of record into the name of any other person.
(c) In the case of a share of Common Stock or Voting Preferred
Stock held of record in the name of a corporation, general partnership, limited
partnership, voting trustee, bank, trust company, broker, nominee or clearing
agency, or in any other name except a natural person, if it has not been
established pursuant to the procedures referred to in subparagraph (4) that such
share was beneficially owned continuously since May 30, 1987 by the person who
possesses all of the attributes of beneficial ownership referred to in clauses
(i) through (iv) of subparagraph (2)(a) of this paragraph C with respect to such
share of Common Stock or Voting Preferred Stock, then such share of Common Stock
or Voting Preferred Stock shall carry with it only one vote regardless of when
record ownership of such share was acquired.
(d) In the case of a share of stock held of record in the name
of any person as trustee, agent, guardian or custodian under the Uniform Gifts
to Minors Act, the Uniform Transfers to Minors Act or any comparable statute as
in effect in any state, a change in beneficial ownership shall be deemed to have
occurred whenever there is a change in the beneficiary of such trust, the
principal of such agent, the ward of such guardian or the minor for whom such
custodian is acting.
(3) Notwithstanding anything in this paragraph C to the contrary,
no change in beneficial ownership shall be deemed to have occurred solely as a
result of:
(a) any event that occurred prior to May 30, 1987, including
contracts providing for options, rights of first refusal and similar
arrangements, in existence on such date to which any holder of shares of stock
is a party;
(b) any transfer of any interest in shares of stock pursuant to
a bequest or inheritance, by operation of law upon the death of any individual,
or by any other transfer without valuable consideration, including a gift that
is made in good faith and not for the purpose of circumventing this paragraph C;
(c) any change in the beneficiary of any trust, or any distri-
bution of a share of stock from trust, by reason of the birth, death, marriage
or divorce of any natural person, the adoption of any natural person prior to
age 18 or the passage of a given period of time or the attainment by any natural
person of a specified age, or the creation or termination of any guardianship or
custodian arrangement; or
(d) any appointment of a successor trustee, agent, guardian or
custodian with respect to a share of stock.
(4) For purposes of this paragraph C, all determinations concerning
changes in beneficial ownership, or the absence of any such change, shall be
made by the Corporation. Written procedures designed to facilitate such
determinations shall be established by the Corporation and refined from time to
time. Such procedures shall provide, among other things, the manner of proof of
facts that will be accepted and the frequency with which such proof may be
required to be renewed. The Corporation and any transfer agent shall be entitled
to rely on all information concerning beneficial ownership of a share of stock
coming to their attention from any source and in any manner reasonably deemed by
them to be reliable, but neither the Corporation nor any transfer agent shall be
charged with any other knowledge concerning the beneficial ownership of a share
of stock.
(5) Each share of Common Stock acquired by reason of any stock
split or dividend shall be deemed to have been beneficially owned by the same
person continuously from the same date as that on which beneficial ownership of
the share of Common Stock, with respect to which such share of Common Stock was
distributed, was acquired.
(6) Each share of Common Stock acquired upon conversion of the
outstanding Series H Preferred Stock of the Corporation ("Convertible Stock")
shall be deemed to have been beneficially owned by the same person continuously
from the date on which such person acquired the Convertible Stock converted into
such share of Common Stock.
(7) Where a holder beneficially owns shares having ten votes per
share and shares having one vote per share, and transfers beneficial ownership
of less than all of the shares held, the shares transferred shall be deemed to
consist, in the absence of evidence to the contrary, of the shares having one
vote per share.
(8) Shares of Common Stock held by the Corporation's employee
benefit plans will be deemed to be beneficially owned by such plans regardless
of how such shares are allocated to or voted by participants, until the shares
are actually distributed to participants.
(9) Each share of Common Stock, whether at any particular time the
holder thereof is entitled to exercise ten votes or one, shall be identical to
all other shares of Common Stock in all other respects.
(10) Each share of Voting Preferred Stock, whether at any
particular time the holder thereof is entitled to exercise ten votes or one,
shall be identical in all other respects to all other shares of Voting Preferred
Stock in the same designated series.
(11) Each share of Common Stock issued by the Corporation in a
business combination transaction shall be deemed to have been beneficially owned
by the person who received such share in the transaction continuously for the
shortest period, as determined in good faith by the Board of Directors, that
would be permitted for the transaction to be accounted for as a pooling of
interests, provided that the Audit Committee of the Board of Directors has made
a good faith determination that such transaction has a bona fide business
purpose, it is in the best interests of the Corporation and its shareholders
that such transaction be accounted for as a pooling of interests under generally
accepted accounting principals and such issuance of Common Stock does not have
the effect of nullifying or materially restricting or disparately reducing the
per share voting rights of holders of an outstanding class or classes of voting
stock of the Corporation. Notwithstanding the foregoing, the Corporation shall
not issue shares in a business combination transaction if such issuance would
result in a violation of any rule or regulation regarding the per share voting
rights of publicly-traded securities that is promulgated by the Securities and
Exchange Commission or the principal exchange upon which the Common Stock is
then listed for trading and nothing herein shall be interpreted to require the
Corporation to account for any business combination transaction in any
particular manner.
D. Non-Assessability; Transfers; Pre-emptive Rights. The stock of
this Corporation shall be fully paid and non-assessable when issued and shall be
personal property. No transfer of such stock shall be binding upon this
Corporation unless such transfer is made in accordance with these Articles and
the by-laws of this Corporation and duly recorded in the books thereof. No
stockholder shall have any pre-emptive right to subscribe to any or all
additions to the stock of this Corporation.
E. Series H Preferred Stock. The Corporation's Preferred Stock, Series
H ("Series H Shares"), shall consist of 20,000 shares of Preferred Stock.
(1) Holders of the outstanding Series H Shares shall be entitled
to one vote per share thereof, voting with holders of shares of Common Stock and
with holders of other voting shares of Preferred Stock as a single class, except
as to those matters on which holders of Preferred Stock or a particular series
thereof are required by applicable law to vote separately; and shall be entitled
to receive, out of any funds legally available therefor, dividends at the rate
of 7% per annum of the part value thereof, and no more, payable in cash
quarterly on the last day of March, June, September, and December in each year,
commencing 1975, when and as declared by the Board of Directors of the
Corporation. Dividends shall accrue on each share of Series H from the date of
its original issuance and shall accrue from day to day, whether or not earned or
declared. Dividends shall be cumulative so that if dividends in respect of any
previously quarterly dividend period at the prescribed rate per annum shall not
have been paid on or declared and set or apart for all Series H Shares at the
time outstanding, the deficiency shall be fully paid on or declared and set
apart for said shares before any dividend or other distribution shall be paid on
or declared or set apart for shares of Common Stock.
(2) In the event of a liquidation, dissolution or winding up of
this Corporation, the holders of Series H Shares shall be entitled to receive,
pro rata with all other holders of Preferred Stock of whatever series, to the
extent available out of the assets of this Corporation, whether such assets are
capital or surplus of any nature, an amount equal to the par value of such
Preferred Stock, and in addition thereto, a further amount equal to the
dividends unpaid and accumulated thereon, to the date that payment is earned or
declared or not, and no more, before any payment shall be made or any assets
distributed to the holders of Common Stock. A consolidation or merger of this
Corporation with or into any other corporation or corporations, or a sale of all
or substantially all of the assets of the Corporation, shall not be deemed to be
a liquidation, dissolution or winding up, within the meaning of this paragraph.
(3) The holders of Series H Shares shall have conversion rights as
follows:
(a) The Series H Shares shall be convertible, at the option of
the respective holders thereof, at the office of the Corporation or any transfer
agent for such shares, into fully paid and non-assessable shares (calculated to
the nearest whole share, fractions of a share being disregarded) of Common Stock
of the Corporation, at the conversion rate of one and twelve thirteenths
(1-12/13ths) shares of Common Stock for each Series H Share converted. Such
conversion rate shall be subject to adjustment from time to time in certain
instances, as hereinafter provided. The Corporation shall make no payment or
adjustment on account of any dividends accrued on the Series H Shares
surrendered for conversion.
(b) Before any holder of Series H Shares shall be entitled to
convert the same in Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series H Shares, and shall give written notice to the
Corporation at such office that he elects to convert the same and shall state in
writing therein the name or names in which he wishes the certificate or
certificates for Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series H Shares, or to his nominee or nominees, certificates for the number of
full shares of Common Stock to which he shall be entitled, as aforesaid. Such
conversion shall be deemed to have been made as of the date of surrender of the
Series H Shares to be converted, and the person or persons entitled to receive
the Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of that Common Stock on said date.
(c) In case the Corporation shall at any time subdivide the
outstanding shares of Common Stock, or shall issue as a dividend on Common Stock
such number of shares of Common Stock as shall equal 10% or more of the number
of shares of Common Stock outstanding immediately prior to the issuance of such
dividend, the conversion price in effect immediately prior to such subdivision
or the issuance of such dividend shall be proportionately decreased, and in case
the Corporation shall at any time combine the outstanding shares of Common
Stock, the conversion price in effect immediately prior to such combination
shall be proportionately increased, effective at the close of business on the
date of such subdivision, dividend or combination, as the case may be.
(d) No fractional shares of Common Stock shall be issued upon
the conversion of Series H Shares. If any fractional interest in a share of
Common Stock would, except for the provisions of this paragraph (d), be
deliverable upon conversion hereunder, the Corporation shall adjust such
fractional interest by rounding off said fractional interest to the nearest
whole number of shares of Common Stock.
(e) Whenever the conversion is adjusted, as herein provided,
the Corporation shall forthwith maintain at its office and file with the
transfer agents for Series H Shares, if any, a statement signed by the Chairman
of the Board, or the President, or a Vice President of the Corporation, and by
its Treasurer or an Assistant Treasurer, showing in detail the facts requiring
such adjustment and the conversion price after such adjustment. Such transfer
agent shall be under no duty or responsibility with resect to any such statement
except to exhibit the same from time to time to any holder of Series H Shares
desiring an inspection thereof.
(f) In case of any capital reorganization or any reclass-
ification of the capital stock of the Corporation or in case of the
consolidation or merger of the Corporation with or into another corporation or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, each Series H Share shall thereafter be convertible into
the number of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation deliverable upon
conversion of such Series H Shares would have been entitled upon such
reorganization, reclassification, consolidation, merger or conveyance; and, in
any such case, appropriate adjustment (as determined by the Board of Directors)
shall be made in the application of the provisions herein set forth with respect
to the rights and interests thereafter of the holders of the Series H Shares, to
the end that the provisions set forth herein (including provisions with respect
to changes in and other adjustments of the conversion price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series H
Shares.
(g) In case:
1. the Corporation shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive a dividend, or
any other distribution, payable otherwise than in cash; or
2. the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to subscribe for or purchase
any shares of stock of any class or to receive any other rights; or
3. of any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation (other than a
subdivision or combination of its outstanding shares of Common Stock),
consolidation or merger of the Corporation with or into another corporation, or
conveyance of all or substantially all of the assets of the Corporation to
another corporation; or
4. of the voluntary or involuntary dissolution, liqui-
dation or winding up of the Corporation; then, and in any such case, the
Corporation shall cause to be mailed to the holders of record of the outstanding
Series H Shares, at least 10 days prior to the date hereinafter specified, a
notice stating the date on which (i) a record is to be taken for the purpose of
such dividend, distribution, or rights, or (ii) such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up is to take place and the date, if any is to be fixed, as of which
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(h) The Corporation shall at all times reserve and keep
available, out of its authorized but unissued Common Stock, solely for the
purpose of effecting the conversion of the Series H Shares, the full number of
shares of Common Stock deliverable upon the conversion of all Series H Shares
from time to time outstanding.
(i) The Corporation shall pay any and all issue and other
taxes that may be payable in respect to any issue or delivery of shares of
Common Stock or conversion of Series H Shares pursuant hereto. The Corporation
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of shares of Common Stock in
a name other than that in which the Series H Shares so converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of any such
tax, or has established, to the satisfaction of the Corporation, that such tax
has been paid.
(j) All certificates of the Series H Shares surrendered for
conversion shall be appropriately cancelled on the books of the Corporation, and
the shares so converted represented by such certificates shall be restored to
the status of authorized but unissued Preferred Stock of the Corporation without
designation as to series.
F. Series L Preferred Stock. The Corporation's 5% Cumulative
Convertible Series L Preferred Stock ("Series L Shares") shall consist of
325,000 shares of Preferred Stock having the preferences, limitations and
relative rights set forth below.
(1) Voting Rights. Holders of the Series L Shares shall be
entitled to cast one vote per share, voting with holders of shares of Common
Stock and with holders of other series of voting preferred stock as a single
class on any matter to come before a meeting of the shareholders, except with
respect to the casting of ballots on those matters as to which holders of
Preferred Stock or a particular series thereof are required by law to vote
separately.
(2) Rank. The Series L Shares shall, with respect to dividend
rights and rights upon liquidation, dissolution and winding up, rank prior to
the Common Stock and pari passu with respect to the Series H Shares. All equity
securities of the Corporation to which the Series L Shares rank prior, whether
with respect to dividends or upon liquidation, dissolution or winding-up or
otherwise, including the Common Stock, are collectively referred to herein as
the "Junior Securities"; all equity securities of the Corporation with which the
Series L Shares rank pari passu, including the Series H Shares, are collectively
referred to herein as the "Parity Securities"; and all other equity securities
of the Corporation (other than any convertible debt securities) to which the
Series L Shares ranks junior are collectively referred to herein as the "Senior
Securities." The preferences, limitations and relative rights of the Series L
Shares shall be subject to the preferences, limitations and relative rights of
the Junior Securities, Parity Securities and Senior Securities issued after the
Series L Shares are issued.
(3) Dividends.
(a) The holders of record of the Series L Shares shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds of the Corporation legally available therefor, an annual cash dividend of
$1.25 on each Series L Share, payable quarterly on each March 31, June 30,
September 30 and December 31 on which any Series L Shares shall be outstanding
(each a "Dividend Due Date"), commencing on the first such date following the
issuance of the Series L Shares. Dividends on each Series L Share shall accrue
and be cumulative from and after the date of issuance of such Series L Share and
dividends payable for any partial quarterly period shall be calculated on the
basis of a year of 360 days consisting of twelve 30-day months. Dividends shall
be payable to the holders of record as they appear on the Corporation's stock
transfer books at the close of business on the record date for such payment,
which the Board of Directors shall fix not more than 60 days or less than 10
days preceding a Dividend Due Date. Holders of the Series L Shares shall not be
entitled to any dividends, whether paid in cash, property or stock, in excess of
the cumulative dividends as provided in this paragraph (a) and shall not be
entitled to any interest thereon.
(b) Unless all cumulative dividends accrued on the Series L
Shares have been or contemporaneously are declared and paid or declared and a
sum set apart sufficient for such payment through the most recent Dividend
Payment Date, then (i) except as provided below, no dividend or other
distribution shall be declared or paid or set apart for payment on any Parity
Securities, (ii) no dividend or other distribution shall be declared or paid or
set aside for payment upon the Junior Securities (other than a dividend or
distribution paid in shares of, or warrants, rights or options exercisable for
or convertible into, Junior Securities) and (iii) no Junior Securities shall be
redeemed, purchased or otherwise acquired for any consideration, nor shall any
monies be paid to or made available for a sinking fund for the redemption of any
Junior Securities, except by conversion of Junior Securities into, or by
exchange of Junior Securities for, other Junior Securities. If any accrued
dividends are not paid or set apart with respect to the Series L Shares and any
Parity Securities, all dividends declared with respect to the Series L Shares
and any Parity Securities shall be declared pro rata on a share-by-share basis
among all Series L Shares and Parity Securities outstanding at the time.
(4) Conversion. Each Series L Share shall be convertible, at any
time, at the option of the holder thereof into that number of fully paid and
nonassessable shares of the Common Stock obtained by dividing $25.00 by the
Conversion Price then in effect under the terms of this subsection (4). Unless
and until changed in accordance with the terms of this subsection (4), the
Conversion Price shall be $41.25. In order for a holder of the Series L Shares
to effect such conversion, the holder shall deliver to KeyCorp Shareholder
Services, Inc., Dallas, Texas, or such other agent as may be designated by the
Board of Directors as the transfer agent for the Series L Shares (the "Transfer
Agent"), the certificates representing such shares in accordance with paragraph
(b) below accompanied by written notice jointly addressed to the Corporation and
the Transfer Agent that the holder thereof elects to convert such shares or a
specified portion thereof. Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the certificates
representing the Series L Shares being converted shall have been delivered to
the Transfer Agent in accordance with each term and condition of paragraph (b)
below, accompanied by the written notice jointly addressed to the Corporation
and the Transfer Agent of such conversion (the "Conversion Date"), and the
person or persons in whose names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the Common Stock represented thereby
at such time. As of the close of business on the Conversion Date, the Series L
Shares shall be deemed to cease to be outstanding and all rights of any holder
thereof shall be extinguished except for the rights arising under the Common
Stock issued in exchange therefor and the right to receive accrued and unpaid
dividends on such Series L Shares through the Conversion Date on the terms
specified in paragraph (c) below.
(b) In connection with surrendering to the Transfer Agent the
certificates representing (or formerly representing) Series L Shares, the holder
shall furnish the Transfer Agent with transfer instruments satisfactory to the
Corporation and sufficient to transfer the Series L Shares being converted to
the Corporation free of any adverse interest or claims. As promptly as
practicable after the surrender of the Series L Shares in accordance with this
paragraph and any other requirement under this subsection (4), the Corporation,
acting directly or through the Transfer Agent, shall issue and deliver to such
holder certificates for the number of whole shares of Common Stock issuable upon
the conversion of such shares in accordance with the provisions hereof (along
with any interest payment specified in paragraph (a) above and any cash payment
in lieu of fractional shares specified in paragraph (d) below). Certificates
will be issued for the balance of any remaining Series L Shares in any case in
which fewer than all of the Series L Shares are converted. Any conversion under
paragraph (a) shall be effected at the Conversion Price in effect on the
Conversion Date.
(c) If the Conversion Date with respect to any Series L
Share occurs after any record date with respect to the payment of a dividend on
the Series L Shares (the "Dividend Record Date") and on or prior to the Dividend
Due Date, then (i) the dividend due on such Dividend Due Date shall be payable
to the holder of record of such share as of the Dividend Record Date and (ii)
the dividend that accrues from the close of business on the Dividend Record Date
through the Conversion Date shall be payable to the holder of record of such
share as of the Conversion Date. Except as provided in this subsection (4), no
payment or adjustment shall be made upon any conversion on account of any
dividends accrued on Series L Shares surrendered for conversion or on account of
any dividends on the Common Stock issued upon conversion.
(d) No fractional interest in a share of Common Stock shall
be issued by the Corporation upon the conversion of any Series L Share. In lieu
of any such fractional interest, the holder that would otherwise be entitled to
such fractional interest shall receive a cash payment (computed to the nearest
cent) equal to such fraction multiplied by the market value of a share of Common
Stock, which shall be deemed to equal the last reported per share sale price of
Common Stock on the New York Stock Exchange ("NYSE") (or, if the Common Stock is
not then traded on the NYSE, the last reported per share sale price on such
other national securities exchange on which the Common Stock is listed or
admitted to trading or, if not then listed or admitted to trading on any
national securities exchange, the last quoted bid price in the over-the-counter
market as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ"), or any similar system of automated
dissemination of securities prices) on the trading day immediately prior to the
Conversion Date.
(e) The Conversion Price shall be adjusted from time to time
as follows:
1. If the Corporation effects any (i) dividend or other
distribution upon or in redemption of the Common Stock payable in the form of
shares of capital stock of the Corporation or any of its subsidiaries or in the
form of any other property (other than cash dividends paid in the ordinary
course), (ii) combination of outstanding shares of Common Stock into a smaller
number of shares of Common Stock, (iii) split or other subdivision of
outstanding shares of Common Stock into a larger number of shares of Common
Stock, or (iv) reorganization, exchange or reclassification of Common Stock, or
any consolidation or merger of the Corporation with another corporation, or the
sale of all or substantially all of its assets to another corporation, or any
other transaction effected in a manner such that holders of outstanding Common
Stock shall be entitled to receive (either directly, or upon subsequent
liquidation) stock, securities or other property with respect to or in exchange
for Common Stock (a "Diluting Event"), then as a condition of such Diluting
Event, lawful, appropriate, equitable and adequate adjustments shall be made to
the Conversion Price whereby the holders of the Series L Shares shall thereafter
be entitled to receive (under the same terms otherwise applicable to their
receipt of the Common Stock upon conversion of the Series L Shares), in lieu of
or in addition to, as the case may be, the number of shares of Common Stock
issuable under this subsection (4), such shares of stock, securities or other
property as may be issued or payable with respect to or in exchange for that
number of shares of Common Stock to which such holders of Series L Shares were
so entitled under this subsection (4), and in any such case appropriate,
equitable and adequate adjustments shall also be made to such resulting
consideration in like manner in connection with any subsequent Diluting Events.
It is the intention of the parties that the foregoing shall have the effect of
entitling such holders of Series L Shares to receive upon the due exercise of
their conversion rights under this subsection (4) such stock, securities and
other property (other than cash dividends paid in the ordinary course) as such
holders would have received had they held the Common Stock issuable under this
subsection (4) (or any replacement or additional stock, securities or property,
as applicable) on the record date of such Diluting Event.
2. No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least 5% of such price.
3. Whenever the Conversion Price is adjusted as herein
provided, the Corporation shall promptly deliver to the Transfer Agent an
officer's certificate setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment,
which certificate shall constitute conclusive evidence, absent manifest error,
of the correctness of such adjustment. Promptly after delivery of such
certificate, the Corporation shall prepare and mail a notice to each holder of
Series L Shares at each such holder's last address as the same appears on the
books of the Corporation, which notice shall set forth the Conversion Price and
a brief statement of the facts requiring the adjustment. The failure of the
Corporation to take any such action shall not invalidate any corporate action by
the Corporation.
(f) The Corporation covenants that (A) all shares of Common
Stock that may be issued upon conversions of Series L Shares will upon issue be
duly and validly issued, fully paid and nonassessable, and free of all liens,
charges or preemptive rights, and (B) it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued shares of Common Stock or its issued shares of Common Stock held in
its treasury, or both, for the purpose of effecting conversions of Series L
Shares, the whole number of shares of Common Stock deliverable upon the
conversion of all outstanding Series L Shares not theretofore converted.
(5) Liquidation Preference. (a) Upon any voluntary or involuntary
dissolution,liquidation, or winding up of the Corporation (for the purposes of
this subsection (5), a "Liquidation"), the holder of each Series L Share then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its shareholders, an amount equal to $25 per share
plus all dividends (whether or not declared or due) accrued and unpaid on such
share on the date fixed for the distribution of assets of the Corporation to the
holders of Series L Shares. With respect to the distribution of the
Corporation's assets upon a Liquidation, the Series L Shares shall rank prior to
Junior Securities, pari passu with the Parity Securities and junior to the
Senior Securities.
(b) If upon any Liquidation of the Corporation, the assets
available for distribution to the holders of Series L Shares and any Parity
Securities then outstanding shall be insufficient to pay in full the liquidation
distributions to the holders of outstanding Series L Shares and Parity
Securities in accordance with the terms of these Articles of Incorporation, then
the holders of such shares shall share ratably in such distribution of assets in
accordance with the amount that would be payable on such distribution if the
amounts to which the holders of the Series L Shares and Parity Securities are
entitled were paid in full.
(c) Neither the voluntary sale, conveyance, lease, pledge,
exchange or transfer of all or substantially all the property or assets of the
Corporation, the merger or consolidation of the Corporation into or with any
other corporation, the merger of any other corporation into the Corporation, a
share exchange with any other corporation, nor any purchase or redemption of
some or all of the shares of any class or series of stock of the Corporation,
shall be deemed to be a Liquidation of the Corporation for the purposes of this
subsection (5) (unless in connection therewith the Liquidation of the
Corporation is specifically approved).
(d) The holder of any Series L Shares shall not be entitled to
receive any payment owed for such shares under this subsection (5) until such
holder shall cause to be delivered to the Corporation the certificate or
certificates representing such Series L Shares and transfer instruments
satisfactory to the Corporation and sufficient to transfer such Series L Shares
to the Corporation free of any adverse interest. No interest shall accrue on any
payment upon Liquidation after the due date thereof.
(e) After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of Series L Shares will not
be entitled to any further participation in any distribution of assets by the
Corporation.
(6) Preemptive Rights. The Series L Shares is not entitled to any
preemptive or subscription rights in respect of any securities of the
Corporation.
G. Series BB Preference Stock. The Corporation's Series BB Parti-
cipating Cumulative Preference Stock shall consist of 1,000,000 shares of
Preferred Stock having the preferences, limitations and relative rights set
forth below. Such number of shares may be increased or decreased by resolution
of the Board of Directors; provided, however, that no decrease shall reduce the
number of shares of Series BB Participating Cumulative Preference Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options or rights or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series BB Participating Cumulative Preference Stock.
(1) The holders of Series BB Participating Cumulative Preference
Stock shall have the following dividend rights.
(a) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series BB Participating Cumulative Preference Stock with respect to
dividends, the holders of shares of Series BB Participating Cumulative
Preference Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the fifteenth day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series BB
Participating Cumulative Preference Stock, in an amount per share (rounded to
the nearest cent) equal to the greater of (a) $10.00 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $1.00 per share, of the Corporation (the "Common Stock")
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series BB Participating Cumulative
Preference Stock. In the event the Corporation shall at any time after August
27, 1996 (the "Right Declaration Date") (i) declare or pay any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount to which holders of shares
of Series BB Participating Cumulative Preference Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution
on the Series BB Participating Cumulative Preference Stock as provided in
paragraph (a) above immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been declared
on the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$10.00 per share on the Series BB Participating Cumulative Preference Stock
shall nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series BB Participating Cumulative Preference Stock from
the Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Series BB Participating Cumulative Preference Stock, unless the date
of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends of such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series BB Participating Cumulative
Preference Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series BB Participating Cumulative Preference Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series BB Participating Cumulative
Preference Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 45 days prior to the
date fixed for the payment thereof.
(2) In addition to any voting rights otherwise required by law,
the holders of shares of Series BB Participating Cumulative Preference Stock
shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each share of Series BB Participating Cumulative Preference Stock shall
entitle the holder thereof to 100 votes on all matters submitted to a vote of
the shareholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare or pay any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the number of votes per share to which holders of
shares of Series BB Participating Preference Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(b) Except as otherwise provided in the Corporation's
Articles of Incorporation or by law, the holders of shares of Series BB
Participating Cumulative Preference Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(c) (i) If at any time dividends on any Series BB
Participating Cumulative Preference Stock shall be in arrears in an amount equal
to six quarterly dividends thereon, the occurrence of such contingency shall
mark the beginning of a period (herein called a "default period") which shall
extend until such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend period on all
shares of Series BB Participating Cumulative Preference Stock then outstanding
shall have been declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the Series BB
Participating Cumulative Preference Stock) with dividends in arrears in an
amount equal to six quarterly dividends thereon, voting as a class, irrespective
of series, shall have the right to elect two Directors.
(ii) During any default period, such voting right
of the holders of Series BB Participating Cumulative Preference Stock may be
exercised initially at a special meeting called pursuant to subparagraph (iii)
of this Section 2(c) or at any annual meeting of shareholders, and thereafter at
annual meetings of shareholders, provided that neither such voting right nor the
right of the holders of any other series of Preferred Stock, if any, to
increase, in certain cases, the authorized number of Directors shall be
exercised unless the holders of 10% in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a quorum of
the holders of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially during an existing
default period, they shall have the right, voting as a class, to elect Directors
to fill such vacancies, if any, in the Board of Directors as may then exist up
to two Directors or, if such right is exercised at an annual meeting, to elect
two Directors. If the number which may be so elected at any special meeting does
not amount to the required number, the holders of the Preferred Stock shall have
the right to make such increase in the number of Directors as shall be necessary
to permit the election by them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect Directors in any
default period and during the continuance of such period, the number of
Directors shall not be increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series BB Participating
Cumulative Preference Stock.
(iii) Unless the holders of Preferred Stock shall,
during an existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order, or any shareholder or
shareholders owning in the aggregate not less than 10% of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the Chairman of the Board, the Chief Executive
Officer, the President, a Vice-President or the Secretary of the Corporation.
Notice of such meeting and of any annual meeting at which holders of Preferred
Stock are entitled to vote pursuant to this paragraph (c)(iii) shall be given to
each holder of record of Preferred Stock by mailing a copy of such notice to the
holder the last address appearing on the books of the Corporation. Such meeting
shall be called for a time not earlier than 20 days and not later than 60 days
after such order or request or in default of the calling of such meeting within
60 days after such order or request, such meeting may be called on similar
notice by any shareholder or shareholders owning in the aggregate not less than
10% of the total number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this paragraph (c)(iii), no such special
meeting shall be called during the period within 60 days immediately preceding
the date fixed for the next annual meeting of the shareholders.
(iv) In any default period, the holders of Common
Stock, and other classes of stock of the Corporation, if applicable, shall
continue to be entitled to elect the whole number of Directors until the holders
of Preferred Stock shall have exercised their right to elect two Directors
voting as a class, after the exercise of which right (x) the Directors so
elected by the holders of Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the expiration of
the default period, and (y) any vacancy in the Board of Directors may (except as
provided in paragraph (c)(ii) of this Section 2) be filled by vote of a majority
of the remaining Directors theretofore elected by the holders of the class of
stock which elected the Director whose office shall have become vacant.
References in this paragraph (c) to Directors elected by the holders of a
particular class of stock shall include Directors elected by such Directors to
fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock as a class to elect
Directors shall cease, (y) the term of any Directors elected by the holders of
Preferred Stock as a class shall terminate, and (z) the number of Directors
shall be such number as may be provided for in the Corporation's Articles of
Incorporation or By-laws irrespective of any increase made pursuant to the
provisions of paragraph (c)(ii) of this Section 2 (such number being subject,
however, to change thereafter in any manner provided by law or in the
Corporation's Articles of Incorporation or By-laws). Any vacancies in the Board
of Directors effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining Directors.
(d) Except as set forth herein, holders of Series BB
Participating Cumulative Preference Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
(3) Any shares of Series BB Participating Cumulative Preference
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the
shareholders or the Board of Directors, subject to the conditions and
restrictions on issuance set forth in the Corporation's Articles of
Incorporation.
(4) The Corporation shall abide by the following restrictions:
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series BB Participating Cumulative Preference Stock
as provided for in Section 1 are in arrears or the Corporation shall be in
default in payment thereof, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series BB
Participating Cumulative Preference Stock outstanding shall have been paid or
set aside for payment in full, and in addition to any and all other rights which
any holder of shares of Series BB Participating Cumulative Preference Stock may
have in such circumstances, the Corporation shall not:
1. declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series BB Participating
Cumulative Preference Stock;
2. declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series BB
Participating Cumulative Preference Stock, unless dividends are paid ratably on
the Series BB Participating Cumulative Preference Stock and all such parity
stock on which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
3. redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series BB Participating
Cumulative Preference Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series BB
Participating Cumulative Preference Stock; or
4. redeem or purchase or otherwise acquire for
consideration any shares of Series BB Participating Cumulative Preference Stock,
or any shares of stock ranking on a parity with the Series BB Participating
Cumulative Preference Stock (either as to dividends or upon liquidation,
dissolution or winding up), except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(b) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
(5) Upon any liquidation, dissolution or winding up of the
Corporation, the holders of Series BB Participating Cumulative Preference Stock
shall have the following rights.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, no distribution shall be made to
the holders of shares of stock ranking (either as to dividends or upon
liquidation, dissolution or winding up) junior to the Series BB Participating
Cumulative Preference Stock unless, prior thereto, the holders of shares of
Series BB Participating Cumulative Preference Stock shall have received $100 per
share, plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment (the "Series BB
Liquidation Preference"). Following the payment of the full amount of the Series
BB Liquidation Preference, no additional distributions shall be made to the
holders of shares of Series BB Participating Cumulative Preference Stock unless,
prior thereto, the holders of shares of Common Stock shall have received an
amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series BB Liquidation Preference by (ii) 100 (as appropriately
adjusted as set forth in subparagraph (c) below to reflect such events as stock
splits, stock dividends and recapitalizations with respect to the Common Stock)
(such number in clause (ii), the "Adjustment Number"). Following the payment of
the full amount of the Series BB Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series BB Participating
Cumulative Preference Stock and Common Stock, respectively, holders of Series BB
Participating Cumulative Preference Stock and holders of shares of Common Stock
shall receive their ratable and proportionate share of the remaining assets to
be distributed in the ratio of the Adjustment Number to 1 with respect to such
Cumulative Preference Stock and Common Stock, on a per share basis,
respectively.
(b) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series BB Liquidation
Preference and the liquidation preferences of all other series of Cumulative
Preference Stock, if any, which rank on a parity with the Series BB
Participating Cumulative Preference Stock, then such remaining assets shall be
distributed ratably to the holders of such parity shares in proportion to their
respective liquidation preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the Common Adjustment
then such remaining assets shall be distributed ratably to the holders of Common
Stock.
(c) In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(6) In case the Corporation shall enter into any consolidation,
merger, combination or other transaction in which the shares of Common Stock are
exchanged for or converted into other stock or securities, cash and/or any other
property, then in any such case the shares of Series BB Participating Cumulative
Preference Stock shall at the same time be similarly exchanged or converted in
an amount per share (subject to the provision for adjustment hereinafter set
forth) equal to 100 times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is converted or exchanged. In the event the
Corporation shall at any time after the Rights Declaration Date (i) declare or
pay any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or conversion of
shares of Series BB Participating Cumulative Preference Stock shall be adjusted
by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(7) The shares of Series BB Participating Cumulative Preference
Stock shall not be redeemable.
(8) The Articles of Incorporation of the Corporation shall not
be further amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series BB Participating Cumulative
Preference Stock so as to affect them adversely without the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Series BB
Participating Cumulative Preference Stock, voting separately as a class.
(9) Series BB Participating Cumulative Preference Stock may be
issued in fractions of a share which shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series BB Participating Cumulative Preference Stock.
ARTICLE IV
Directors
A. Number of Directors. The business and affairs of this Corporation
shall be managed under the direction of the Board of Directors. The number of
directors comprising the Board of Directors of this Corporation (exclusive of
directors who may be elected by the holders of any one or more series of
Preferred Stock voting separately) shall be 14 unless otherwise determined from
time to time by resolution adopted by the affirmative votes of both (i) 80% of
the directors then in office and (ii) a majority of the Continuing Directors (as
defined in Article V(D)), voting as a separate group, provided, however, that no
decrease in the number of directors shall shorten the term of any incumbent
director.
B. Classification. The Board of Directors, other than those who may
be elected by the holders of any one or more series of Preferred Stock voting
separately, shall be divided, with respect to the time during which they shall
hold office, into three classes, designated Class I, II and III, as nearly equal
in number as possible. Any increase or decrease in the number of directors shall
be apportioned by the Board of Directors so that all classes of directors shall
be as nearly equal in number as possible. At each annual meeting of
shareholders, directors chosen to succeed those whose terms then expire shall be
elected to hold office for a term expiring at the annual meeting of shareholders
held in the third year following the year of their election and until their
successors are duly elected and qualified.
C. Vacancies. Except as provided in Article IV (G) hereof, any
vacancy on the Board (including any vacancy resulting from an increase in the
authorized number of directors or from a failure of the shareholders to elect
the full number of authorized directors) may, notwithstanding any resulting
absence of a quorum of directors, be filled only by the Board of Directors,
acting by vote of both (i) a majority of the directors then in office and (ii) a
majority of all the Continuing Directors, voting as a separate group, and any
director so appointed shall serve until the next shareholders' meeting held for
the election of directors of the class to which he shall have been appointed and
until his successor is duly elected and qualified.
D. Removal. Subject to Article IV (G) hereof and notwithstanding
any other provisions of these Articles or the Bylaws of this Corporation, any
director or the entire Board of Directors may be removed at any time, but only
for cause, by the affirmative vote at a meeting of shareholders called for such
purpose of the holders of both (i) a majority of the Total Voting Power (as
defined in Article V(D) hereof) entitled to be cast by the holders of Voting
Stock (as defined in Article V(D) hereof), voting together as a single class,
and (ii) a majority of the Total Voting Power entitled to be cast by the
Independent Shareholders (as defined in Article V(D) hereof), voting as a
separate group. At the same meeting in which the shareholders remove one or more
directors, a successor or successors may be elected for the unexpired term of
the director or directors removed. Except as set forth in this Article,
directors shall not be subject to removal.
E. Tender Offers and Other Extraordinary Transactions. In connection
with the exercise of its judgment in determining what is in the best interest of
the Corporation and its stockholders when evaluating a Business Combination (as
defined in Article V(D) hereof) or a tender or exchange offer or a proposal by
another Person or Persons to make a tender or exchange offer, the Board of
Directors of the Corporation shall consider, in addition to the adequacy of the
amount to be paid in connection with any such transaction, all of the following
factors and any other factors which it deems relevant: (i) the social and
economic effects of the transaction on the Corporation and its subsidiaries, and
their respective employees, customers, creditors and other elements of the
communities in which they operate or are located, (ii) the business and
financial condition and earnings prospects of the acquiring Person or Persons,
including, but not limited to, debt service and other existing or likely
financial obligations of the acquiring Person or Persons, and the possible
effect of such conditions upon the Corporation and its Subsidiaries and the
other elements of the communities in which the Corporation and its subsidiaries
operate or are located, and (iii) the competence, experience and integrity of
the acquiring Person or Persons and its or their management.
F. Board Qualifications. (1) Except as otherwise provided in Article
IV(G) hereof, no person shall be eligible for nomination, election or service
as a director of the Corporation who shall:
(a) in the opinion of the Board of Directors fail to respond
satisfactorily to the Corporation respecting any inquiry of the Corporation for
information to enable the Corporation to make any certification required by the
Federal Communications Commission under the Anti-Drug Abuse Act of 1988 or to
determine the eligibility of such person under this Article;
(b) have been arrested or convicted of any offense concerning
the distribution or possession of, or trafficking in, drugs or other controlled
substances, provided that in the case of an arrest the Board of Directors may in
its discretion determine that notwithstanding such arrest such persons shall
remain eligible under this Article; or
(c) have engaged in actions that could lead to such an arrest
or conviction and that the Board of Directors determines would make it unwise
for such person to serve as a director of the Corporation.
(2) Any person serving as a director of the Corporation shall
automatically cease to be a director on such date as he ceases to have the
qualifications set forth in paragraph (1) above, and his position shall be
considered vacant within the meaning of Article IV(C) hereof.
G. Directors Elected by Preferred Shareholders. Notwithstanding
anything in these Articles of Incorporation to the contrary, whenever the
holders of any one or more series of Preferred Stock shall have the right,
voting separately as a class, to elect one or more directors of the Corporation,
the provisions of these Articles of Incorporation (as they may be duly amended
from time to time) fixing the rights and preferences of such Preferred Stock
shall govern with respect to the nomination, election, term, removal, vacancies
or other related matters with respect to such directors.
ARTICLE V
Certain Business Combinations
A. Vote Required in Business Combinations. No Business Combination may
be effected unless all of the following conditions have been fulfilled:
(1) In addition to any vote otherwise required by law or these
Articles, the proposal to effect a Business Combination shall have been approved
by (i) a majority of the directors then in office and a majority of the
Continuing Directors and (ii) by the affirmative votes of both of the following:
(a) 80% of the Total Voting Power entitled to be cast by
holders of outstanding shares of Voting Stock of this Corporation, voting as a
separate voting group; and
(b) Two-thirds of the Total Voting Power entitled to be cast
by the Independent Stockholders present or duly represented at a meeting,
voting as a separate voting group.
(2) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended (the "Act"), and the rules and regulations
thereunder (or any subsequent provisions replacing the Act, rules or regulations
as a whole or in part) is mailed to all shareholders of the Corporation at least
30 days prior to the consummation of such Business Combination (regardless of
whether such proxy or information statement is required pursuant to the Act or
subsequent provisions).
B. Nonapplicability of Voting Requirements. The vote required by
Paragraph A of this Article does not apply to a Business Combination if all
conditions specified in either of paragraphs 1 or 2 below are met:
(1) The proposed Business Combination is approved prior to the time
the Related Person involved in the proposed transaction became a Related Person
by the affirmative votes of both a majority of the directors then in office and
a majority of the Continuing Directors, voting as a separate group.
(2) All of the following five conditions have been met:
(a) The aggregate amount of the cash and the Market Value on
the Valuation Date of consideration other than cash to be received per share by
all holders of Common Stock in such Business Combination is at least equal to
the highest of the following:
1. the highest per share price, including any brokerage
commissions, transfer taxes and soliciting dealers' fees, paid by or on behalf
of the Related Person for any shares of Common Stock of the same class or series
acquired by it within the two-year period immediately prior to the Announcement
Date or in the transaction in which it became a Related Person, whichever is
higher;
2. The Market Value per share of Common Stock of the
same class or series on the Announcement Date or on the Determination Date,
whichever is higher; or
3. The price per share equal to the Market Value per
share of Common Stock of the same class or series determined pursuant to clause
(2) immediately preceding, multiplied by the fraction of the highest per share
price, including any brokerage commissions, transfer taxes and soliciting
dealers' fees, paid by or for the Related Person for any shares of Common Stock
of the same class or series acquired by it within the two-year period
immediately prior to the Announcement Date, over the Market Value per share of
Common Stock of the same class or series on the first day in such two-year
period on which the Related Person acquired any shares of Common Stock.
(b) The aggregate amount of the cash and the Market Value as
of the Valuation Date of consideration other than cash to be received per share
by holders of shares of any class or series of outstanding stock other than
Common Stock is at least equal to the highest of the following, whether or not
the Related Person has previously acquired any shares of a particular class or
series of stock:
1. The highest per share price, including any brokerage
commissions, transfer taxes and soliciting dealers' fees, paid by or for the
Related Person for any shares of such class of stock acquired by it within the
two-year period immediately prior to the Announcement Date or in the transaction
in which it became a Related Person, whichever is higher;
2. The highest preferential amount per share to which
the holders of shares of such class of stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up of this
Corporation;
3. The Market Value per share of such class of stock on
the Announcement Date or on the Determination Date, whichever is higher; or
4. The price per share equal to the Market Value per
share of such class of stock determined pursuant to clause (3) immediately
preceding, multiplied by the fraction of the highest per share price, including
any brokerage commissions, transfer taxes and soliciting dealers' fees, paid by
or for the Related Person for any shares of any class of Voting Stock acquired
by it within the two-year period immediately prior to the Announcement Date,
over the Market Value per share of the same class of Voting Stock on the first
day in such two-year period on which the Related Person acquired any shares of
the same class of Voting Stock.
(c) The consideration to be received by holders of any class
or series of outstanding stock is to be in cash or in the same form as the
Related Person has previously paid for shares of the same class or series of
stock. If the Related Person has paid for shares of any class of stock with
varying forms of consideration, the form of consideration for such class of
stock shall be either cash or the form used to acquire the largest number of
shares of such class or series of stock previously acquired by it.
(d) After the Related Person has become a Related Person an
prior to the consummation of such Business Combination:
1. There shall have been no failure to declare and pay
at the regular date therefor any full periodic dividends,
cumulative or not, on any outstanding Preferred Stock of
this Corporation;
2. There shall have been no reduction in the annual rate
of dividends paid on any class or series of stock of this
Corporation that is not Preferred Stock except as necessary to
reflect any subdivision of the stock, and no failure to increase
the annual rate of dividends as necessary to reflect any
reclassification, including any reverse stock split,
recapitalization, reorganization, or any similar transaction
which has the effect of reducing the number of outstanding shares
of the stock; and
3. The Related Person did not become the Beneficial Owner
of any additional shares of stock of this Corporation except
as part of the transaction which resulted in such Related Person
becoming a Related Person or by virtue of proportionate stock
splits or stock dividends.
The provisions of clause (1) and (2) immediately preceding shall not apply if no
Related Person or an Affiliate or Associate of the Related Person voted as a
director of this Corporation in a manner inconsistent with such clauses and the
Related Person, within ten days after any act or failure to act inconsistent
with such clauses, notifies the Board of Directors of this Corporation in
writing that the Related Person disapproves thereof and requests in good faith
that the Board of Directors rectify such act or failure to act.
(e) After the Related Person has become a Related Person, the
Related Person may not have received the benefit, directly or indirectly, except
proportionately as a shareholder, of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax advantages provided
by this Corporation or any of its Subsidiaries, whether in anticipation of or in
connection with such Business Combination or otherwise.
C. Alternative Shareholder Vote for Business Combinations. In the event
the conditions set forth in Subparagraph (B)(1) or (B)(2) have been met, the
affirmative vote required of shareholders in order to approve the proposed
Business Combination shall be 66-2/3% of the Total Voting Power present or duly
represented at the meeting called for such purpose.
D. Definitions. The following terms, for all purposes of these
Articles or the By-laws of this Corporation, shall have the following meaning:
(1) An "Affiliate" of, or a person "affiliated with," a
specified person means a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
(2) "Announcement Date" means the first general public announcement
of the proposal or intention to make a proposal of the Business Combination or
its first communication generally to shareholders of this Corporation, whichever
is earlier.
(3) "Associate," when used to indicate a relationship with any
person, means any of the following:
(a) Any corporation or organization, other than this
Corporation, of which such person is an officer, director or partner or
is, directly or indirectly, the Beneficial Owner of 10% or more of any
class of Equity Securities.
(b) 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 fiduciary capacity.
(c) Any relative or spouse of such person, or any relative
of such spouse, who has the same home as such person.
(d) Any investment company registered under the Investment
Company Act of 1940 for which such person serves as investment advisor.
(4) A person shall be deemed to be the "Beneficial Owner" of any
shares of capital stock (regardless whether owned of record):
(a) Which that person or any of its Affiliates or Associates,
directly or indirectly, owns beneficially;
(b) Which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether exercisable immediately or only
after the passage of time)pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii)the right to vote pursuant to
any agreement, arrangement or understanding; or
(c) Which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of voting
capital stock of the corporation or any of its subsidiaries.
(5) "Business Combination" means any of the following transactions,
when entered into by the Corporation or a Subsidiary with, or upon a proposal
by, a Related Person:
(a) The merger or consolidation of, or an exchange of
securities by, the Corporation or any Subsidiary;
(b) The sale, lease, exchange, mortgage, pledge, transfer or
any other disposition (in one or a series of transactions) of any
assets of the Corporation, or of any Subsidiary, having an aggregate book
or fair market value of $1,000,000 or more, measured at the time the
transaction or transactions are approved by the Board of Directors;
(c) The adoption of a plan or proposal for the liquidation or
dissolution of the Corporation or any Subsidiary;
(d) The issuance or transfer by the Corporation or any
Subsidiary (in one or a series of transactions) of securities of the
Corporation, or of any Subsidiary, having a fair market value of $1,000,000
or more;
(e) The reclassification of securities (including a reverse
stock split), recapitalization, consolidation or any other transaction
(whether or not involving a Related Person) which has the direct or
indirect effect of increasing the voting power (regardless whether then
exercisable) or the proportionate amount of the outstanding shares of any
class or series of Equity Securities of this Corporation or any of its
Subsidiaries held by a Related Person, or any Associate or Affiliate of a
Related Person;
(f) Any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages provided
by the Corporation or any subsidiary to a Related Person or any
Affiliate or Associate thereof, except proportionately as a shareholder; or
(g) Any agreement, contract or other arrangement providing
directly or indirectly for any of the foregoing.
(6) "Capital Stock" means any Common Stock, Preferred Stock or
other capital stock of the Corporation, or any bonds, debentures, or other
obligations granted voting rights by the Corporation pursuant to La.
R.S. 12:75H.
(7) "Common Stock" means any stock other than a class or series
of preferred or preference stock.
(8) "Continuing Director" shall mean any member of the Board of
Directors who is not a Related Person or an Affiliate or Associate thereof, and
who was a member of the Board of Directors prior to the time that the Related
Person became a Related Person, and any successor to a Continuing Director who
is not a Related Person or an Affiliate or Associate thereof and was recommended
to succeed a Continuing Director by a majority of Continuing Directors who were
then members of the Board of Directors, provided that, in the absence of a
Related Person, any reference to "Continuing Directors" shall mean all directors
then in office.
(9) "control," including the terms "controlling," "controlled by"
and "under common control with," means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, by contract or
otherwise. The beneficial ownership of 10% or more of the votes entitled to be
cast by a corporation's voting stock creates a presumption of control.
(10) "Determination Date" means the date on which a Related Person
first became a Related Person.
(11) "Equity Security" means any of the following:
(a) Any stock or similar security, certificate of interest
or participation in any profit sharing agreement, voting trust certificate
or certificate of deposit for an equity security.
(b) Any security convertible, with or without consideration,
into an equity security, or any warrant or other security carrying any
right to subscribe to or purchase an equity security.
(c) Any put, call, straddle or other option or privilege
of buying an equity security from or selling an equity security to another
without being bound to do so.
(12) "Independent Shareholder" or "Independent Stockholder" means
a holder of Voting Stock of this Corporation who is not a Related Person.
(13) "Market Value" means the following:
(a) In the case of stock, the highest closing sale price on
the date or during the period in question of a share of such stock on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is listed or, if such
stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of such stock on the date or during
the period in question on the National Association of Securities
Dealers, Inc., Automated Quotations Systems, or any alternative system
then in use, or, if no such quotations are available, the fair market value
on the date or during the period in question of a share of such stock as
determined by a majority of the Continuing Directors of this Corporation
in good faith.
(b) In the case of property other than cash or stock, the fair
market value of such property on the date or during the period in question
as determined by a majority of the Continuing Directors of this
Corporation in good faith.
(14) A "person" shall mean any individual, firm, corporation or
other entity, or a group of persons acting or agreeing to act together in the
manner set forth in Rule 13d-5 under the Securities Exchange Act of 1934, as in
effect on January 1, 1984.
(15) "Related Person" means any person (other than the Corporation,
a Subsidiary or any profit sharing, employee stock ownership or other employee
benefit plan of the Corporation or any Subsidiary or any trust, trustee of or
fiduciary with respect to any such plan acting in such capacity) who (a) is the
direct or indirect Beneficial Owner of shares of Capital Stock representing more
than 10% of the outstanding Total Voting Power entitled to vote for the election
of directors, and any Affiliate or Associate of any such person, or (b) is an
Affiliate or Associate of the Corporation and at any time within the two-year
period immediately prior to the date in question was the Beneficial Owner,
directly of indirectly, of shares of Capital Stock (including two or more
classes or series voting together as a single class) representing 10% or more of
the outstanding Total Voting Power entitled to vote for the election of
directors. For the purpose of determining whether a person is the Beneficial
Owner of a percentage, specified in this Article, of the outstanding Total
Voting Power, the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned by that person through application of Article
V(D)(3) but shall not include any other shares which may be issuable to any
other person.
(16) "Subsidiary" means any corporation of which Voting Stock having
a majority of the votes entitled to be cast is owned, directly or indirectly,
by this Corporation.
(17) "Total Voting Power," when used in reference to any particular
matter properly brought before the shareholders for their consideration and
vote, means the total number of votes that holders of Capital Stock are entitled
to cast with respect to such matter.
(18) "Valuation Date" means the following:
(a) For a Business Combination voted upon by shareholders,
the latter of the date prior to the date of the shareholders' vote and the
day 20 days prior to the consummation of the Business Combination; and
(b) For a Business Combination not voted upon by the share-
holders, the date of the consummation of the Business Combination.
(19) "Voting Stock" means shares of Capital Stock of the Corporation
entitled to vote generally in the election of directors.
E. Benefit of Statute. This Corporation claims and shall have the
benefit of the provisions of R.S. 12:133 except that the provisions of R.S.
12:133 shall not apply to any business combination involving an interested
shareholder that is an employee benefit plan or related trust of this
Corporation.
ARTICLE VI
Shareholders' Meetings
A. Written Consents. Any action required or permitted to be taken at
any annual or special meeting of shareholders may be taken only upon the vote of
the shareholders, present in person or represented by duly authorized proxy, at
an annual or special meeting duly noticed and called, as provided in the Bylaws
of the Corporation, and may not be taken by a written consent of the
shareholders pursuant to the Business Corporation Law of the State of Louisiana.
B. Special Meetings. Subject to the terms of any outstanding class or
series of Preferred Stock that entitles the holders thereof to call special
meetings, the holders of a majority of the Total Voting Power of the Corporation
shall be required to cause the Secretary of the Corporation to call a special
meeting of shareholders pursuant to La. R.S. 12:73B (or any successor
provision). Nothing in this Article VI shall limit the power of the President of
the Corporation or its Board of Directors to call a special meeting of
shareholders.
ARTICLE VII
Limitation of Liability and Indemnification
A. Limitation of Liability. No director or officer of the Corporation
shall be liable to the Corporation or to its shareholders for monetary damages
for breach of his fiduciary duty as a director or officer, provided that the
foregoing provision shall not eliminate or limit the liability of a director or
officer for (1) any breach of his duty of loyalty to the Corporation or its
shareholders; (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) liability for unlawful
distributions of the Corporation's assets to, or redemptions or repurchases of
the Corporation's shares from, shareholders of the Corporation, under and to the
extent provided in La. R.S. 12:92D; or (4) any transaction from which he derived
an improper personal benefit.
B. Authorization of Further Actions. The Board of Directors may (1)
cause the Corporation to enter into contracts with its directors and officers
providing for the limitation of liability set forth in this Article to the
fullest extent permitted by law, (2) adopt By-laws or resolutions, or cause the
Corporation to enter into contracts, providing for indemnification of directors
and officers of the Corporation and other persons (including but not limited to
directors and officers of the Corporation's direct and indirect Subsidiaries) to
the fullest extent permitted by law and (3) cause the Corporation to exercise
the insurance powers set forth in La. R.S. 12:83F, notwithstanding that some or
all of the members of the Board of Directors acting with respect to the
foregoing may be parties to such contracts or beneficiaries of such By-laws or
resolutions or the exercise of such powers. No repeal or amendment of any such
By-laws or resolutions limiting the right to indemnification thereunder shall
affect the entitlement of any person to indemnification whose claim thereto
results from conduct occurring prior to the date of such repeal or amendment.
C. Subsidiaries. The Board of Directors may cause the Corporation to
approve for the officers and directors of its direct and indirect Subsidiaries
limitation of liability, indemnification and insurance provisions comparable
to the foregoing.
D. Amendment of Article. Notwithstanding any other provisions of these
Articles of Incorporation, the affirmative vote of the holders of at least 80%
of the Total Voting Power shall be required to amend or repeal this Article
VII, and any amendment or repeal of this Article shall not adversely affect any
elimination or limitation of liability of a director or officer of the
Corporation under this Article with respect to any action or inaction occurring
prior to the time of such amendment or repeal.
ARTICLE VIII
Reversion
Except for cash, shares or other property or rights payable or issuable
to the holders of Preferred Stock, the rights to which shall be determined under
applicable state law, Cash, property or share dividends, shares issuable to
shareholders in connection with a reclassification of stock, and the redemption
price of redeemed shares, that are not claimed by the shareholders entitled
thereto within one year after the dividend or redemption price became payable or
the shares became issuable, despite reasonable efforts by the Corporation to pay
the dividend or redemption price or deliver the certificates for the shares to
such shareholders within such time, shall, at the expiration of such time,
revert in full ownership to the Corporation, and the Corporation's obligation to
pay such dividend or redemption price or issue such shares, as the case may be,
shall thereupon cease, provided, however, that the Board of Directors may, at
any time, for any reason satisfactory to it, but need not, authorize (i) payment
of the amount of any cash or property dividend or redemption price or (ii)
issuance of any shares, ownership of which has reverted to the Corporation
pursuant to this Article, to the person or entity who or which would be entitled
thereto had such reversion not occurred.
ARTICLE IX
Amendments
A. Charter Amendments. Articles IV (other than paragraphs F and G),
V, VI(A) and IX of these Articles of Incorporation shall not be amended in any
manner (whether by modification or repeal of an existing Article or Articles or
by addition of a new Article or Articles) except upon resolutions adopted by the
affirmative vote of both (i) 80% of the Total Voting Power entitled to be cast
by the holders of outstanding shares of Voting Stock, voting together as a
single group, and (ii) two-thirds of the Total Voting Power entitled to be cast
by the Independent Shareholders present or duly represented at a shareholders'
meeting, voting as a separate group; provided, however, that if such resolutions
shall first be adopted by both a majority of the directors then in office and a
majority of the Continuing Directors, voting as a separate group, then such
resolutions shall be deemed adopted by the shareholders upon the affirmative
vote of a majority of the Total Voting Power entitled to be cast by the holders
of outstanding shares of Voting Stock, voting as a single group.
B. Bylaw Amendments. Bylaws of this Corporation may be altered,
amended, or repealed or new Bylaws may be adopted by (i) the shareholders, but
only upon the affirmative vote of both 80% of the Total Voting Power entitled to
be cast by the holders of outstanding shares of Voting Stock, voting together as
a single group, and two-thirds of the Total Voting Power entitled to be cast by
the Independent Shareholders present or duly represented at a shareholders'
meeting, voting as a separate group, or (ii) the Board of Directors, but only
upon the affirmative vote of both a majority of the directors then in office and
a majority of the Continuing Directors, voting as a separate group.
* * * * * * *
These Amended and Restated Articles of Incorporation are dated as of May
6, 1999.
WITNESSES: CENTURYTEL, INC.
(formerly Century Telephone Enterprises, Inc.)
/s/ Stacey W. Goff By: /s/ Glen F. Post, III
- -------------------------- --------------------------------
Glen F. Post, III, President
/s/ Kay Buchart By: /s/ Harvey P. Perry
- -------------------------- --------------------------------
Harvey P. Perry, Secretary
<PAGE>
ACKNOWLEDGMENT
STATE OF LOUISIANA
PARISH OF OUACHITA
BEFORE ME, the undersigned authority, personally came and appeared Glen
F. Post, III and Harvey P. Perry, to me known to be the persons who signed the
foregoing instrument as President and Secretary, respectively, and who, having
been duly sworn, acknowledged and declared, in the presence of the two witnesses
whose names are subscribed below, that they signed such instrument as their free
act and deed for the purposes mentioned therein.
IN WITNESS WHEREOF, the appearers, witnesses and I have hereunto affixed
our hands on this 6th day of May, 1999.
WITNESSES:
/s/ Stacey W. Goff /s/ Glen F. Post, III
- ---------------------- --------------------------
Glen F. Post, III, President
/s/ Kay Buchart /s/ Harvey P. Perry
- ---------------------- --------------------------
Harvey P. Perry, Secretary
/s/ Kenneth J. Najder
-----------------------------
NOTARY PUBLIC
EXHIBIT 11
CenturyTel, Inc.
COMPUTATIONS OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
- -----------------------------------------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------
(Dollars, except per share amounts,
and shares expressed in thousands)
<S> <C> <C> <C> <C>
Income (Numerator):
Net income $ 53,462 64,191 114,567 121,885
Dividends applicable to preferred stock (102) (102) (204) (204)
- -----------------------------------------------------------------------------------
Net income applicable to common stock 53,360 64,089 114,363 121,681
Dividends applicable to preferred stock 102 102 204 204
Interest on convertible securities, net of taxes 63 93 126 186
- -----------------------------------------------------------------------------------
Net income as adjusted for purposes of
computing diluted earnings per share $ 53,525 64,284 114,693 122,071
===================================================================================
Shares (Denominator): *
Weighted average number of shares:
Outstanding during period 139,321 137,484 138,944 137,263
Employee Stock Ownership Plan shares
not committed to be released (469) (562) (489) (577)
- -----------------------------------------------------------------------------------
Number of shares for computing basic
earnings per share 138,852 136,922 138,455 136,686
Incremental common shares attributable to
additional dilutive effect of convertible
securities 2,609 3,106 2,790 3,015
- -----------------------------------------------------------------------------------
Number of shares as adjusted for purposes of
computing diluted earnings per share 141,461 140,028 141,245 139,701
===================================================================================
Basic earnings per share * $ .38 .47 .83 .89
===================================================================================
Diluted earnings per share * $ .38 .46 .81 .87
===================================================================================
* Reflects March 1999 stock split. See Note 4.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET OF CENTURYTEL, INC. AND SUBSIDIARIES AS OF
JUNE 30, 1999 AND THE RELATED UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE
SIX MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 93,893
<SECURITIES> 0
<RECEIVABLES> 197,602
<ALLOWANCES> 3,535
<INVENTORY> 20,624
<CURRENT-ASSETS> 316,034
<PP&E> 3,979,280
<DEPRECIATION> 1,797,761
<TOTAL-ASSETS> 4,558,713
<CURRENT-LIABILITIES> 430,160
<BONDS> 2,017,472
0
8,106
<COMMON> 139,363
<OTHER-SE> 1,501,682
<TOTAL-LIABILITY-AND-EQUITY> 4,558,713
<SALES> 0
<TOTAL-REVENUES> 831,006
<CGS> 0
<TOTAL-COSTS> 569,758
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,728
<INCOME-PRETAX> 231,105
<INCOME-TAX> 116,538
<INCOME-CONTINUING> 114,567
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,567
<EPS-BASIC> .83 <F1>
<EPS-DILUTED> .81 <F1>
<FN>
<F1> REFLECTS MARCH 1999 STOCK SPLIT. FINANCIAL DATA SCHEDULES FOR
PRIOR PERIODS HAVE NOT BEEN RESTATED TO REFLECT SUCH STOCK SPLIT.
</FN>
</TABLE>
EXHIBIT 99
ASSET PURCHASE AGREEMENT
Between
GTE ARKANSAS INCORPORATED,
GTE MIDWEST INCORPORATED
and
GTE SOUTHWEST INCORPORATED,
as Sellers,
and
CENTURYTEL, INC.,
as Buyer
June 29, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS......................................................1
1.1 Terms............................................................1
1.2 Interpretation..................................................11
ARTICLE 2 PURCHASE AND SALE OF ASSETS.....................................11
2.1 Purchase and Sale of Assets.....................................11
2.3 Excluded Property...............................................12
2.4 Assumption of Liabilities.......................................13
2.4.1 Assumed Liabilities.......................................13
2.4.2 Retained Liabilities......................................14
2.5 No Assignment Without Consent...................................15
ARTICLE 3 ARTICLE 3. PURCHASE PRICE.......................................16
3.1 Purchase Price..................................................16
3.2 Closing Date Estimate...........................................16
3.3 Closing Date Statement..........................................17
3.4 Performance Deposit.............................................18
ARTICLE 4 REQUIRED APPROVALS, CONSENTS AND NOTIFICATIONS..................19
4.1 State Regulatory Approval.......................................19
4.2 Bondholder Consents.............................................19
4.3 Material Consents...............................................19
4.4 FCC Consents....................................................19
4.5 HSR Act Review..................................................19
4.6 Notification....................................................20
4.7 GTE/Bell Atlantic Merger........................................20
ARTICLE 5 PRE-CLOSING COVENANTS...........................................20
5.1 Investigation by Buyer..........................................20
5.2 Operation of the Business in the Ordinary Course................21
5.2.1 Preservation of Business..................................21
5.2.2 No Material Changes.......................................21
5.3 Satisfaction of Conditions......................................22
5.4 Approvals.......................................................22
5.5 Financial Statements............................................23
5.6 Capital Expenditures............................................23
5.7 Delivery of Interim Information.................................23
5.8 Cooperation with Respect to Like-Kind Exchange..................23
5.9 Additional Exchanges............................................24
ARTICLE 6 CONDITIONS PRECEDENT TO THE CLOSING.............................24
6.1 Conditions Precedent to Obligations of Buyer....................24
6.1.1 No Misrepresentation or Breach of Covenants and
Warranties................................................24
6.1.2 Documents.................................................25
6.1.3 HSR.......................................................25
6.1.4 No Legal Obstruction......................................25
6.1.5 No Material Adverse Effect................................25
6.2 Conditions Precedent to Obligations of Sellers..................25
6.2.1 No Misrepresentation or Breach of Covenants and
Warranties................................................25
6.2.2 Documents.................................................25
6.2.3 Delivery of Closing Date Amount...........................25
6.2.4 HSR.......................................................26
6.2.5 No Legal Obstruction......................................26
ARTICLE 7 THE CLOSING.....................................................26
7.1 The Closing.....................................................26
7.2 Sellers' Obligations at Closing.................................26
7.3 Buyer's Obligations at Closing..................................27
ARTICLE 8 REPRESENTATIONS AND WARRANTIES..................................27
8.1 Representations and Warranties of Sellers.......................27
8.1.1 Authorization and Effect of Agreement....................28
8.1.2 No Restrictions Against Sale or Assignment of the
Purchased Property.......................................28
8.1.3 Consents, Approvals and Permits of Governmental
Authorities..............................................28
8.1.4 No Violation of Law......................................28
8.1.5 Corporate Organization...................................29
8.1.6 Brokers..................................................29
8.1.7 Title to Owned Real Property.............................29
8.1.8 Real Property Leases.....................................29
8.1.9 Tangible Assets..........................................29
8.1.10 No Material Adverse Change...............................30
8.1.11 Material Contracts.......................................30
8.1.12 Insurance................................................31
8.1.13 Taxes....................................................31
8.1.14 No Material Claims or Suits..............................31
8.1.15 Tariffs; FCC Licenses....................................31
8.1.16 Employee Matters.........................................32
8.1.17 Schedules of Telephone Plant.............................34
8.1.18 Schedule of Real Property Interests......................34
8.1.19 Environmental Matters....................................34
8.1.20 Schedule of Joint Construction Projects..................35
8.1.21 Financial Statements.....................................35
8.1.22 Year 2000 Compliance.....................................36
8.1.23 Access Line Count........................................37
8.2 Representations and Warranties of Buyer.........................37
8.2.1 Corporate Organization....................................37
8.2.2 Authorization and Effect of Agreement.....................37
8.2.3 No Restrictions Against Purchase of the Purchased
Properties................................................37
8.2.4 No Violation of Law.......................................37
8.2.5 Financial Capacity........................................38
8.2.6 Brokers...................................................38
8.2.7 Consents and Approvals of Governmental Authority..........38
ARTICLE 9 CONTINUING BUSINESS RELATIONSHIPS...............................38
9.1 Transition Services Agreement...................................38
9.2 Optional Services Agreement.....................................38
9.3 Directory Publishing............................................39
9.3.1 Assumption of Certain Directory Publishing Agreement
Rights and Obligations....................................39
9.3.2 Co-Bound Directories Acknowledgement......................39
9.3.3 Meeting to Discuss Directory Publication..................39
9.4 GTE Telecom Agreements..........................................39
ARTICLE 10 ADDITIONAL COVENANTS OF THE PARTIES.............................40
10.1 Intellectual Property...........................................40
10.1.1 No License...............................................40
10.1.2 Infringement.............................................40
10.1.3 Trademark Phaseout.......................................40
10.1.4 Software.................................................41
10.2 Effect of Due Diligence and Related Matters.....................42
10.3 Confidentiality.................................................43
10.4 Further Assurances..............................................43
10.5 Prorations......................................................43
10.6 Cost Studies/NECA Matters.......................................43
10.6.1 Prior to Closing.........................................43
10.6.2 From and After Closing...................................44
10.7 Customer Deposits and Construction Advances.....................45
10.8 Access to Books and Records.....................................45
10.9 Purchase Price Allocation.......................................45
10.10 Owned Real Property Transfers...................................46
10.11 Transaction Taxes...............................................47
10.12 Bulk Sales Laws.................................................47
10.13 Prepaid Non-regulated Maintenance Agreements....................47
10.14 Vehicle Registration............................................47
10.15 Carrier Access Billing and Accounts Receivable Transition.......47
10.16 End-User Billing and Accounts Receivable Transition.............48
10.17 Cooperation.....................................................48
ARTICLE 11 EMPLOYEES AND EMPLOYEE MATTERS..................................49
11.1 Employment of Transferred Employees.............................49
11.1.1. Assumption of Collective Bargaining Agreement
Obligations............................................49
11.1.2 Assumption of Employment and Other Agreements...........50
11.1.3 Recognition of Transferred Employee Service.............50
11.1.4 Assumption of Obligation to Pay Bonuses.................50
11.1.5 No Duplicate Benefits; Dependents and Beneficiaries.....51
11.1.6 Affiliate Employees.....................................51
11.1.7 Term of Assumed Obligations.............................51
11.2 Transferred Employee Benefit Matters............................51
11.2.1 Defined Benefit Plans...................................51
11.2.2 Savings Plans...........................................57
11.2.3 Welfare Plans...........................................59
11.3 Miscellaneous Benefits..........................................61
11.3.1 Loans...................................................61
11.3.2 Vacation................................................62
11.4 Employee Rights.................................................63
11.5 WARN Act Requirements...........................................63
11.6 Indemnification.................................................63
11.6.1 Indemnification of Sellers..............................63
11.6.2 Indemnification of Buyer............................... 64
11.7 Special Provisions For Certain Employees........................64
ARTICLE 12 INDEMNIFICATION.................................................65
12.1 Survival of Representations, Warranties and Covenants...........65
12.2 Indemnification.................................................66
12.3 Limitations on Liability........................................66
12.4 Defense of Claims...............................................68
ARTICLE 13 TERMINATION.....................................................70
13.1 Termination Rights..............................................70
13.2 Good Faith Performance..........................................70
13.3 Effect of Termination...........................................70
ARTICLE 14 MISCELLANEOUS...................................................71
14.1 Notices.........................................................71
14.2 Information Releases............................................72
14.3 Expenses........................................................73
14.4 Successors and Assigns..........................................73
14.5 Amendments......................................................73
14.6 Captions........................................................73
14.7 Entire Agreement................................................73
14.8 Waiver..........................................................73
14.9 Third Parties...................................................74
14.10 Counterparts....................................................74
14.11 Governing Law...................................................74
14.12 Further Assurances..............................................74
14.13 Severability....................................................74
14.14 Representation by Counsel; Interpretation.......................74
<PAGE>
INDEX OF SCHEDULES
Schedule* Title
- -------- -----
1.1-A Assigned Contracts
1.1-B Excluded Contracts
1.1-C Purchased Exchanges
1.1-D License Agreement
1.1-E National Account Agreement Customers
2.3(g) Other Excluded Property
4.3 Material Consents
4.4 FCC Consents/Waivers
5.2.1 Operation of the Business
5.2.2(c) Increase in Transferred Employee Benefits
5.2.2(d) Dispositions
5.9 Additional Exchanges
6.1.1 Sellers' Closing Certificate
6.2.1 Buyer's Closing Certificate
7.2(a) Bill of Sale and Assignment and Assumption Agreement
7.2(b) Legal Opinion of Sellers' Counsel
7.2(g) Affidavit as to Status of Foreign Person
7.3(c) Legal Opinion of Buyer's Counsel
8.1.3 Consents, Approvals and Permits of Governmental Authorities
8.1.4 Violation of Law
8.1.7(a) Owned Real Property
8.1.7(b) Bondholders Liens
8.1.8 Real Property Leases
8.1.9 Title Exceptions for Tangible Purchased Property
8.1.10 Material Adverse Changes
8.1.11(a) Material Contracts - Limitations on Competition
8.1.11(b) Material Contracts - Liens
8.1.11(c) Material Contracts - Sale of Purchased Property
8.1.11(d) Material Contracts - Public Communications
8.1.11(e) Material Contracts - Ordinary Course
8.1.13 Exceptions to Tax Return Filings
8.1.14 State and Federal Claims/Suits
8.1.15(a) Tariff Proceedings
8.1.15(b) FCC Licenses
8.1.16(a) Employee Matters - Sellers' Employee Benefit Plans
8.1.16(b) Employee Matters - Sellers' Material Liabilities under ERISA
8.1.16(c) Employee Matters - Sellers' ERISA Plans - Compliance
8.1.16(d) Employee Matters - Sellers' Multiemployer Plans
8.1.16(e) Employee Matters - Sellers' Union Representation
8.1.17 Telephone Plant
8.1.18 Real Property Interests List
8.1.19 Environmental Matters
8.1.20 Joint Construction Projects
8.1.21(a) Financial Statement - Estimated Income Statement
8.1.21(b) Financial Statement - Estimated Balance Sheet
8.1.21(c) Financial Statement - Estimated Statement of Cash Flows
9.1 Transition Services Agreement
9.2 Optional Services Agreement
9.3.1 Directory Publishing Agreements
9.3.2 Co-Bound Directory Agreements
9.4 GTE Telecom Agreements
11.1 Employees and Employee Matters - Transferred Employees and LTD
Recipients
11.1.1 Employees and Employee Matters - Collective Bargaining Agreements
11.1.2 Employees and Employee Matters - Employment Agreement Obligations
and Exceptions
11.1.4 Employees and Employee Matters - Sellers' Bonus Plans
11.3.1 Employees and Employee Matters - Employment Loans
* The Schedule numbers refer to the appropriate Section within the Agreement.
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 29th day of June, 1999, by and between CenturyTel, Inc., a
Louisiana corporation ("Buyer"), and GTE Arkansas Incorporated, a Delaware
corporation, GTE Midwest Incorporated, a Delaware corporation, and GTE Southwest
Incorporated, a Delaware corporation (collectively, "Sellers").
RECITALS
WHEREAS, Sellers are in the business of providing regulated local
exchange telephone service in certain areas of the state of Arkansas; and
WHEREAS, Sellers desire to sell, convey, assign, transfer and
deliver to Buyer, and Buyer desires to purchase and accept from Sellers, certain
of their telephone properties and related assets used in the provision of such
service, upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Terms. For purposes of this Agreement and any amendment hereto, the
-----
following terms are defined as set out below or in the Section referenced below:
"Accounts Receivable Settlement Statements" is defined in Section
10.16(b).
"Acquired Local Loop" means a "Local Loop" as defined in 47 C.F.R.
Section 51.319(a) of the FCC's rules, which Local Loop is part of the Purchased
Exchanges.
"Active Employees" is defined in Section 11.1.
"Additional Exchanges" is defined in Section 5.9.
"Advanced Billings" means amounts arising primarily from the
operation of the Business that have been billed by Sellers as of the Closing
Date but that are unearned because they relate to provision of service after the
Closing Date.
"Affiliate" means, with respect to any Person, any other Person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Allocation" is defined in Section 10.9.
"Ancillary Documents" means the Transition Services Agreement, the
Optional Services Agreement, the License Agreement, the GTE Telecom Agreements
and the Bill of Sale and Assignment and Assumption Agreement.
"Assigned Contracts" means Contracts to which Sellers are a party
(i) which relate primarily to the operation of the Business, other than the
Excluded Contracts, Real Property Interests, Real Property Leases and Third
Party Intellectual Property Contracts, and (ii) any other Contract to which
Sellers or their Affiliates are a party and is listed on Schedule 1.1-A.
"Assigned Permits" means, to the extent assignable, all permits,
licenses, franchises, approvals and authorizations of Sellers issued or granted
by any Governmental Authority that relate primarily to the operation of the
Business, other than the FCC Licenses and the Excluded Permits.
"Assumed Liabilities" is defined in Section 2.4.1
"Automated Assets" is defined in Section 8.1.22.
"Bargained Welfare Plans" is defined in Section 11.2.3(a).
"Base Purchase Price" is defined in Section 3.1.
"Bill of Sale and Assignment and Assumption Agreement" is defined
in Section 7.2(a).
"Bondholder Consents" is defined in Section 4.2.
"Bondholders" means the Persons listed on Schedule 8.1.7(b).
"Business" means the business of providing in the geographic area
serviced by the Purchased Exchanges (i) local exchange (including extended
community calling and extended area service), exchange access, switched,
dedicated, special access, tandem, end office switching service and intra-LATA
toll telecommunications services to end users, (ii) exchange access
telecommunications services to interexchange carriers and other local exchange
carriers, (iii) retail sales, leasing and maintenance of telephone equipment and
products (including customer premises equipment), (iv) non-tariffed public
communications (pay telephones) and commercial telecommunications services
facilities leasing, and (v) provision of subscriber listing information
(including directory services).
"Buyer Pension" is defined in Section 11.2.1(c)(iii)(B).
"Buyer Pension Plan" and "Buyer Pension Plans" are defined in
Section 11.2.1(b).
"Buyer Savings Plan" and "Buyer Savings Plans" are defined in
Section 11.2.2(b).
"Buyer Welfare Plans" is defined in Section 11.2.3(a).
"Buyer's Actuary" is defined in Section 11.2.1(d)(ii).
"Buyer's Closing Certificate" is defined in Section 6.2.1.
"Calendar-Related" is defined in Section 8.1.22.
"Capital Expenditure Amount" is defined in Section 5.6.
"Capital Expenditure Deficiency" is defined in Section 5.6.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Closing" is defined in Section 7.1.
"Closing Date" is defined in Section 7.1.
"Closing Date Amount" is defined in Section 3.2(b).
"Closing Date Statement" is defined in Section 3.3.
"CLTA" is defined in Section 10.10.
"Co-Bound Directories" is defined in Section 9.3.2.
"Confidentiality Agreement" means the Confidentiality Agreement
dated as of August 24, 1998, between Buyer, Sellers and certain Affiliates of
Sellers.
"Construction Advances" means advances collected by Sellers for the
future performance of non-regulated construction in the Purchased Exchanges.
"Contracts" means all contracts, leases, indentures, agreements, and
other legally binding arrangements.
"Customer Advances" means amounts arising from the operation of the
Business that have been billed and collected by Sellers as of the Closing Date
but that are unearned because they relate to the provision of service after the
Closing Date.
"Customer Deposits" is defined in Section 10.7.
"Date Data" is defined in Section 8.1.22.
"Deposit" is defined in Section 3.4.
"Deposit L/C" is defined in Section 3.4.
"Direct Claim" is defined in Section 12.4(b).
"DOJ" is defined in Section 4.5.
"Due Diligence Materials" means all materials contained in the six
volumes delivered to Buyer on June 25, 1999.
"Earned End-User Accounts Receivable" means accounts receivable
arising primarily from the operation of the Business that have been earned by
Sellers' provision of service on or before the Closing Date excluding amounts
billed through the carrier access billing system to interexchange carriers.
"Earned End-User Accounts Receivable Amount" means the aggregate
amount of all Earned End-User Accounts Receivable as of the Closing Date, less a
discount for anticipated uncollectible Earned End-User Accounts Receivable in an
amount equal to the Uncollectible Factor multiplied by the Earned End-User
Accounts Receivable as of the Closing Date.
"Employment Agreements" is defined in Section 8.1.16(a).
"Environmental Requirements" means all federal, state, interstate
and local government or agency Laws relating to pollution or protection of human
health and safety or the environment (including, without limitation, air,
surface water, ground water, land surface and subsurface strata), including,
without limitation, Laws relating to emissions, discharges, releases or
threatened releases of Regulated Materials; or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation or handling of Regulated Materials.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Plans" is defined in Section 8.1.16(a).
"Estimated Non-Regulated Construction Work in Process Amount" is
defined in Section 3.2(a).
"Estimated Regulatory Obligation Amount" is defined in Section
3.2(a).
"Evaluation Material" is defined in the first paragraph of the
Confidentiality Agreement.
"Excluded Contracts" means all billing and collection agreements,
interconnection agreements, National Account Agreements, billing media
agreements, vehicle leasing agreements, except to the extent expressly listed on
Schedule 1.1-A, and (ii) such other agreements as are listed on Schedule 1.1-B.
"Excluded Marks" means all trademarks, applications for trademark
registration, service marks, applications for service mark registration, trade
names, domain names and related registrations owned by Sellers or an Affiliate
of Sellers, or licensed to Sellers or an Affiliate of Sellers by any Person, and
any derivations of the foregoing.
"Excluded Permits" means the permits, licenses, franchises,
approvals and authorizations of Sellers by Governmental Authorities that relate
to the Excluded Property.
"Excluded Property" is defined in Section 2.3.
"Executive Officers" of Sellers means the regional president of the
region that includes the Purchased Exchanges, the general manager and the
director of infrastructure provisioning for the Purchased Exchanges and the
general manager of customer operations for the Purchased Exchanges.
"Expiration Date" is defined in Section 12.1(a).
"FCC" means the Federal Communications Commission.
"FCC Consents" is defined in Section 4.4.
"FCC Licenses" means all licenses, certificates, permits or other
authorizations granted to Sellers by the FCC that are used primarily in the
operation of the Business.
"Final Order" is defined in Section 6.1.4.
"Financial Statements" is defined in Section 8.1.21.
"FRP" is defined in Section 11.2.3(e).
"FTC" is defined in Section 4.5.
"Future Capital Expenditure Obligations" is defined in Section
2.4.1(h).
"Future Regulatory Obligations" is defined in Section 2.4.1(g).
"GAAP" means United States generally accepted accounting
principles.
"GATT Grandfathered Participant" is defined in Section
11.2.1(c)(ii)(C).
"Governmental Authority" means any court or any federal, state or
foreign governmental, legislative, administrative or regulatory body, agency,
department, authority or other instrumentality.
"GTE Telecom Agreements" is defined in Section 9.4.
"GTE Telecom Assets" is defined in Section 9.4.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Indemnifiable Losses" is defined in Section 12.3(a).
"Indemnification Payment" is defined in Section 12.3(a).
"Indemnifying Party" is defined in Section 12.3(a).
"Indemnitee" is defined in Section 12.3(a).
"Intellectual Property" means all inventions (whether patentable or
not and whether or not such inventions are described or claimed in any patent or
patent application), designs (useful or ornamental), and works subject to
copyright protection, invention disclosures, specifications, manuals, drawings,
functional or system block diagrams, flow charts, circuit diagrams, design or
user documentation, engineering notebooks, schematics, test programs, documented
procedures, documented processes, documented flows, devices, software (in any
form), or firmware, and all intellectual property rights therein or based
thereon, including patents, patent applications (including continuations,
continuations-in-part, divisions, reissues), reexamined patents and extensions
thereof, copyrights (whether registered or unregistered), and trade secrets.
"IRC" means the Internal Revenue Code of 1986, as amended.
"IRS" means the Internal Revenue Service.
"Joint Construction Projects" is defined in Section 2.4.1(d).
"LTD Recipient" is defined in Section 11.7.
"Law" or "Laws" means any statute, rule, regulation, mandate,
decree, decision, order or ordinance of any Governmental Authority.
"Leased Real Property" means the real property leased to Sellers
under the Real Property Leases.
"License Agreement" means the license agreement attached hereto as
Schedule 1.1-D pursuant to which Sellers grant to Buyer certain rights and
licenses under Licensed Intellectual Property.
"Licensed Intellectual Property" means Intellectual Property owned
by Sellers, and Third Party Intellectual Property licensed to Sellers which
Sellers have the right to sublicense to Buyer and its Affiliates without the
payment of compensation or other consideration to any Person, and which
Intellectual Property and Third Party Intellectual Property (i) are required for
the use or maintenance (to the extent not provided by the owner or licensor of
the Third Party Intellectual Property) of the Purchased Exchanges, (ii) are
located in the geographic area of the Purchased Exchanges, and (iii) are used in
the operation of the Business as of the Closing; provided that Licensed
Intellectual Property shall at all times be Excluded Property.
"Lien" means any lien, charge, pledge, option, mortgage, security
interest, right of first refusal or other encumbrance.
"Material Adverse Effect" means a materially adverse effect on the
Business or the Purchased Property, taken as a whole, other than effects
relating to or arising from (i) the execution of this Agreement, (ii) the United
States economy generally or Arkansas in particular, or (iii) events or
circumstances that affect the Business in the same manner and to the same extent
as other businesses in the industry generally.
"Material and Supply Inventory" is defined in the FCC's Part 32
Uniform System of Accounts.
"Material Consents" is defined in Section 4.3.
"Material Contracts" is defined in Section 8.1.11.
"Merger" means the proposed merger involving GTE Corporation and
Bell Atlantic Corporation and their respective Subsidiaries.
"National Account Agreements" means agreements between Sellers or
their Affiliates with those customers listed on Schedule 1.1-E.
"NECA" is defined in Section 10.6.1.
"Non-Regulated Construction" means all construction related to
non-tariffed activities, including PBX, CPE and related construction activities.
"Non-Regulated Construction Work in Process Amount" means amounts
expended by Sellers for non-regulated construction work not completed as of
Closing Date, net of Construction Advances related to such construction work.
Non-Regulated Construction Work in Process Amount is billable by Buyer to third
parties after Closing Date.
"Non-Union Welfare Plans" is defined in Section 11.2.3(a).
"Optional Services Agreement" is defined in Section 9.2.
"Owned Real Property" means the real property (i) owned in fee by
Sellers, (ii) located in the geographic area of the Purchased Exchanges and
(iii)used primarily in the operation of the Business, including all land,
buildings, structures, appurtenances and improvements located thereon.
"Participant Loans" is defined in Section 11.2.2(c)(i).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Assets" is defined in Section 11.2.1(d)(i).
"Periodic Taxes" is defined in Section 10.5.
"Permitted Encumbrances" means (i) Liens for current Taxes and
assessments not yet delinquent, or the amount or validity of which is being
contested in good faith by appropriate proceedings during which collection or
enforcement against the relevant property is stayed, (ii) standard utility
easements, covenants and restrictions of record that do not individually or in
the aggregate materially interfere with the operation of the Business as
currently conducted on the Owned Real Property affected thereby, (iii)
mechanics', carriers', workers', repairers' and other statutory Liens,
satisfaction of which has not come due in the ordinary course of business, (iv)
existing zoning or similar Laws or ordinances that do not interfere with the
operation of the Business, (v) leases otherwise disclosed herein, and (vi) any
other Liens that do not materially interfere with the operations of the
Purchased Property in a manner consistent with the current use by Sellers.
"Person" means an individual, corporation, partnership, trust,
association, limited liability company or similar entity or organization.
"Plans" is defined in Section 8.1.16(a).
"Price-Cap Regulation Entity" means an entity subject to price-cap
regulation within the meaning of 47 C.F.R Section 61.41(c)(2) (the "all-or-
nothing" rule).
"Proration Periods" is defined in Section 10.5.
"Publisher" is defined in Section 9.3.1.
"Publishing Agreement" is defined in Section 9.3.1.
"PUC" shall mean the Public Utilities Commission of the State of
Arkansas.
"Purchase Price" is defined in Section 3.3(c).
"Purchased Exchanges" means the telephone exchanges listed in
Schedule 1.1-C.
"Purchased Property" is defined in Section 2.2.
"Rate-of-Return Regulation Entity" means an entity not subject to
price-cap regulation within the meaning of 47 C.F.R. Section 61.41(c)(2) (the
"all-or-nothing" rule).
"Real Property Interests" means all easements, rights of way,
licenses or other interests in real property of Sellers that are used primarily
in the operation of the Business, and are located in the geographic area of the
Purchased Exchanges, other than Owned Real Property or Leased Real Property.
"Real Property Leases" means the Leases set forth on Schedule 8.1.8.
"Regulated Material" means (i) any "hazardous substance" as defined
in CERCLA, (ii) any petroleum or petroleum substance, and (iii) any other
pollutant, waste, contaminant, or other substance regulated under Environmental
Requirements.
"Regulatory Approvals" is defined in Section 4.1.
"Regulatory Obligation Amount" is defined in Section 3.1.
"Retained Books and Records" means, collectively, all corporate
records and stock books of Sellers and their Affiliates, the general ledger, all
records required by Law to be retained by Sellers and all books and records
relating to (i) Tax Returns and Tax records, (ii) Excluded Property, (iii)
attorney work product, and (iv) the Retained Liabilities; provided that where
reasonably necessary or prudent, "Retained Books and Records" shall also include
copies of the Transferred Books and Records.
"Retained Future Capital Expenditure Obligations" is defined in
Section 2.4.1(h).
"Retained Future Regulatory Obligations" is defined in Section
2.4.1(g).
"Retained Liabilities" is defined in Section 2.4.2.
"Retired Non-Union Transferred Employee" is defined in Section
11.2.3(b)(ii).
"Sellers' Actuary" is defined in Section 11.2.1(d)(ii).
"Sellers' Bonus Plans" is defined in Section 11.1.4.
"Sellers' Closing Certificate" is defined in Section 6.1.1.
"Sellers' Hourly Pension Plan" is defined in Section
11.2.1(a)(ii).
"Sellers' LTD Plan" is defined in Section 11.7.
"Sellers' Pension" is defined in Section 11.2.1(c)(iii)(B).
"Sellers' Pension Plan" and "Sellers' Pension Plans" are defined
in Section 11.2.1(a)(ii).
"Sellers' Salaried Pension Plan" is defined in Section
11.2.1(a)(i).
"Sellers' Savings Plans" is defined in Section 11.2.2(a).
"Sellers' Welfare Plans" is defined in Section 11.2.3(a).
"Switch Software" means any telephone switch software licensed to
Sellers which software is necessary to Sellers' current operation and use of any
telephone switching equipment in the Purchased Exchanges and which equipment is
included in Telephone Plant.
System Date" is defined in Section 8.1.22.
"Tax Returns" means a report, return or other information statement
required to be supplied to or filed with a Governmental Authority with respect
to Taxes.
"Tax(es)" means any foreign, federal, state, county or local income,
sales, use, transfer, excise, franchise, stamp duty, custom duty, real and
personal property, gross receipt, capital stock, business and occupation,
disability, employment, payroll, recording, ad valorem, unemployment
compensation, profits, registration, social security, estimated, add-on,
minimum, or withholding tax relating to the Business or the Purchased Exchanges
and any interest and penalties and additions to such taxes (civil or criminal)
related thereto or to the nonpayment thereof and related notarial fees.
"Telephone Plant" means (i) Owned Real Property, (ii) Real Property
Interests, and (iii) the machinery, equipment, inventory, vehicles (whether
currently owned or leased by Sellers) and all other assets and properties used
primarily in the operation of the Business, including all plant, systems,
structures, construction work in progress, telephone cable (whether in service
or under construction), microwave facilities (including frequency spectrum
assignment), telephone line facilities, machinery, furniture, fixtures, tools,
implements, conduits, stations, substations, equipment (including central office
equipment, subscriber station equipment, network connection equipment and other
equipment in general), instruments, house wiring connections and other personal
property used primarily in the operation of the Business and located in the
Purchased Exchanges, other than Excluded Property. Without limiting the
generality of the foregoing, Telephone Plant includes the assets that would be
properly included in the fixed assets referenced in Part 32 of the FCC Rules and
Regulations (47 CFR, Part 32), as such accounts are reflected in Schedule
8.1.17.
"Third Party Claim" is defined in Section 12.4(a).
"Third Party Intellectual Property" means Intellectual Property
owned by any Person, other than Sellers, without regard as to whether Sellers
have any rights therein or the right to assign such rights to Buyer.
"Third Party Intellectual Property Contracts" is defined in
Section 10.1.4.
"Total Service Pension" is defined in Section 11.2.1(c)(iii)(B).
"Transaction Taxes" is defined in Section 10.11.
"Transferred Books and Records" means all of Sellers' customer or
subscriber lists and records, accounts and billing records, plant and continuing
property records, plans, blueprints, specifications, drawings, surveys,
engineering reports, personnel records of Transferred Employees (where
applicable), tariffs, orders or other material correspondence or records
relating to regulation of the Business by any Governmental Authority, and all
other documents, computer data and records, in each case relating primarily to
the operation of the Business, except for the Retained Books and Records.
"Transferred Employees" is defined in Section 11.1.
"Transition Services Agreement" is defined in Section 9.1.
"Transitional Year" means any calendar year (beginning with the
calendar year in which the Closing occurs) in which USF distributions are based
upon the costs, whether historic costs or forward-looking economic costs,
reported for a calendar year in which Seller owned the Acquired Local Loop for
any part of such calendar year.
"Uncollectible Factor" is defined in Section 10.16.
"USAC" is defined in Section 10.6.1.
"USF" is defined in Section 10.6.1.
"Vacation Proration Amount" is defined in Section 11.3.2.
"Year 2000 Compliant" is defined in Section 8.1.22.
1.2 Interpretation.
---------------
(a) Unless the context otherwise requires,(i) all references
to Sections, Articles or Schedules are to Sections, Articles or Schedules of or
to this Agreement, (ii) each accounting term not otherwise defined in this
Agreement has the meaning assigned to it in accordance with GAAP, (iii) all
references to the "knowledge of Sellers" are deemed to refer to the actual
knowledge of the Executive Officers of Sellers, (iv) the term "primarily" means
primarily or exclusively, and (v) the term "including" means including without
limitation.
(b) No provision of this Agreement will be interpreted in
favor of or against either of the parties by reason of the extent to which any
such party or its counsel participated in the drafting thereof or by reason of
the extent to which any such provision is inconsistent with any prior draft of
such provision or of this Agreement.
(c) Except as otherwise provided in this Agreement, in the
event of any dispute concerning the "knowledge" of a party to this Agreement,
the burden of proof shall be on the party asserting that another party had such
knowledge.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Assets. Upon the terms and subject to the
---------------------------
conditions of this Agreement, Sellers hereby agree to sell, convey, transfer,
assign and deliver to Buyer and Buyer hereby agrees to purchase, acquire and
accept from Sellers, in each case effective as of the Closing, all of Sellers'
right, title and interest in and to the Purchased Property.
2.2 Purchased Property. The term "Purchased Property" means all the
------------------
following business, properties, assets and rights of Sellers on the Closing
Date, other than the Excluded Property:
(i) Telephone Plant;
(ii) Earned End-User Accounts Receivable;
(iii) Material and Supply Inventory
(iv) Non-Regulated Construction Work In Process
(v) FCC Licenses and Assigned Permits;
(vi) Assigned Contracts;
(vii) Transferred Books and Records;
(viii) Real Property Leases;
(ix) Advance Billings;
(x) Insurance proceeds of Sellers arising from any loss,
damage or destruction of Purchased Property between the
date hereof and the Closing Date, to the extent that (1)
such Purchased Property has not been replaced by
Sellers, and (2) such insurance proceeds do not exceed
the replacement cost of such Purchased Property; and
(xi) All other business, property, assets and rights of
Sellers on the Closing Date not described above that
relate primarily to the Purchased Exchanges.
2.3 Excluded Property. For purposes of this Agreement,"Excluded
-----------------
Property" means the following:
(a) Cash,cash equivalents and investments;
(b) All rights of Sellers and their Affiliates under this
Agreement, the Ancillary Documents and the certificates and other documents
delivered to Sellers by Buyer in connection with this Agreement;
(c) All records prepared in connection with the sale of the
Business, including bids received from third parties and analysis relating to
the Business;
(d) All rights and obligations related to the Retained
Liabilities;
(e) The Retained Books and Records;
(f) Sellers' interests in any business other than the
Business, including the provision of wireless service (cellular and PCS),
inter-LATA long distance and internet service or internet related services,
air-to-ground communications (air phone service), and any Excluded Permits
related thereto, and all assets of Sellers and their Affiliates used in con-
nection with any such business or related thereto, and all assets used by
Sellers and their Affiliates in rendering corporate services to Sellers or the
Business that are located outside the geographic area serviced by the Purchased
Exchanges
(g) Such other assets (i.e.,encryption decoder devices,
AWAS terminals, SODA, etc.), if any, as set forth on Schedule 2.3(g);
(h) The Excluded Contracts;
(i) The Excluded Marks;
(j) All Intellectual Property,including the Licensed
Intellectual Property and Third Party Intellectual Property (except for such
rights to possess and use Third Party Intellectual Property as may be assigned
in accordance with Section 10.1.4); and
(k) All of Sellers' insurance proceeds arising in connection
with the operation of the Business or the Purchased Property prior to the
Closing, except as described in Section 2.2(x).
2.4 Assumption of Liabilities.
-------------------------
2.4.1 Assumed Liabilities. Upon the terms and subject to the
conditions of this Agreement, Buyer hereby agrees to assume, as of the Closing
Date, and agrees, beginning on the day following the Closing Date, to pay,
perform and discharge when due the following (the "Assumed Liabilities"):
(a) Ordinary Course. All liabilities, responsibilities and
obligations (including Taxes), arising out of or accruing or resulting from the
use or ownership of the Purchased Property in the ordinary course after the
Closing Date;
(b) Employment Matters. All liabilities, responsibilities
and obligations of Buyer as provided in Article 11 with respect to Transferred
Employees;
(c) Assigned Contracts, Real Property Interests and Real
Property Leases. All liabilities, responsibilities and obligations that arise
after the Closing Date in connection with the performance of the Assigned
Contracts, Real Property Interests and the Real Property Leases;
(d) Joint Construction Projects. All liabilities, respon-
sibilities and obligations to third parties that relate to arrangements and
commitments between Sellers and a third party related to post-Closing
engineering and construction required to complete scheduled construction of
mutual transmission facilities between various switching points included in the
Purchased Exchanges ("Joint Construction Projects");
(e) Construction in Progress. All liabilities, responsibi-
lities and obligations relating to post-Closing engineering and construction
required to complete scheduled construction and other capital expenditure
projects for the Purchased Exchanges;
(f) Customer Advances, Advance Billings, Customer Deposits
and Construction Advances. All liabilities, responsibilities and obligations
relating to Customer Advances, Advance Billings, Customer Deposits and
Construction Advances;
(g) Future Regulatory Obligations. All liabilities,
responsibilities and obligations, other than Future Capital Expenditure
Obligations, related to the Purchased Exchanges arising out of any Law
promulgated or issued by a Governmental Authority after the Closing Date or
other action taken by a Governmental Authority after the Closing Date,
regardless of whether such Law or action is or purports to be based on conduct
or actions that occurred at any time prior to the Closing Date ("Future
Regulatory Obligations"), except that Buyer shall not be liable for any such
Future Regulatory Obligation arising directly out of any intentional misconduct
by Sellers or conduct by Sellers that was not reasonably prudent based on the
circumstances prevailing at the time that occurred prior to the Closing Date
("Retained Future Regulatory Obligations"); provided that (i) Sellers' reliance
on reasonable interpretation of existing Law or practice shall be deemed
reasonably prudent, and (ii) Sellers shall not retain any liability for Future
Regulatory Obligations to the extent that the costs associated with such
obligations are included in Buyer's rate base for the Purchased Exchanges;
(h) Future Capital Expenditure Obligations. All liabilities,
responsibilities and obligations related to the Purchased Exchanges arising out
of any Law promulgated or issued by a Governmental Authority or other action
taken by a Governmental Authority requiring any capital expenditure (other than
a Future Regulatory Obligation) after the date of this Agreement, regardless of
whether such Law or action is or purports to be based on conduct, facts or
actions that occurred at any time prior to the date of this Agreement ("Future
Capital Expenditure Obligations"), except that Buyer shall not be liable for any
such Future Capital Expenditure Obligation arising directly out of any
intentional misconduct by Sellers or conduct by Sellers that was not reasonably
prudent based on the circumstances prevailing at the time ("Retained Future
Capital Expenditure Obligations"); provided that (i) Sellers' reliance on
reasonable interpretation of existing Law or practice shall be deemed reasonably
prudent, and (ii) Sellers shall not retain any liability for Future Capital
Expenditure Obligations to the extent that the costs associated with such
obligations are included in Buyer's rate base for the Purchased Exchanges. Prior
to the Closing Date, Sellers shall notify Buyer of all material Future Capital
Expenditure Obligations within a reasonable time after publication of said
obligations by a Governmental Authority; and
(i) Litigation and Claims. All liabilities and obligations
arising out of (i) litigation and claims that arise out of an occurrence after
the Closing Date, (ii) litigation and claims in respect of Future Regulatory
Obligations (other than Retained Future Regulatory Obligations) regardless of
when filed, and (iii) claims of a Governmental Authority arising from or related
to a Future Regulatory Obligation (other than Retained Future Regulatory
Obligations).
Notwithstanding anything in this Section 2.4.1 to the contrary, "Assumed
Liabilities" shall not include any liabilities, responsibilities or obligations
expressly included in Retained Liabilities pursuant to Section 2.4.2.
2.4.2 Retained Liabilities. Sellers jointly and severally shall
retain and shall pay, perform and discharge when due, the following liabilities,
responsibilities and obligations of Sellers (the "Retained Liabilities");
provided that Retained Liabilities shall not include any liability,
responsibility or obligation with respect to any matter that is the subject of a
representation, warranty or covenant by Sellers (breaches of which shall be
handled in accordance with Article 12):
(a) Subject to Section 10.5, all trade payables and other
accrued payment obligations of Sellers as of the Closing Date;
(b) All debt of Sellers (including indebtedness to the
Bondholders) and debt of Sellers owed to any one or more of their Affiliates;
(c) Subject to Section 10.5, all federal, state and local
income, franchise, gross receipts and similar Taxes of Sellers or their consoli-
dated or combined group and all federal, state and local income, franchise,
gross receipts and sales, use, property or other Taxes relating to the operation
of the Business on or before the Closing Date or the use, ownership or operation
of the Purchased Property on or before the Closing Date;
(d) Except to the extent otherwise provided in Article 11,
all liabilities and obligations arising on or before the Closing Date with
respect to the Transferred Employees, including (i) all liabilities
responsibilities and obligations arising on or before the Closing Date relating
to collective bargaining agreements or other union Contracts, and (ii) any such
liabilities or obligations that arise after the Closing Date to the extent that
such liabilities and obligations relate to facts, circumstances or conditions
arising or occurring on or before the Closing Date, but excluding any Future
Regulatory Obligations with respect to the Transferred Employees;
(e) All liabilities, responsibilities and obligations
resulting from (i) litigation and claims that arise out of an occurrence prior
to the Closing Date, (ii) litigation and claims in respect of Retained Future
Regulatory Obligations and (iii) litigation and claims in respect of Retained
Future Capital Expenditure Obligations;
(f) Any Retained Future Regulatory Obligations and any
Retained Future Capital Expenditure Obligations; and
(g) All liabilities, responsibilities and obligations with
respect to the Excluded Property and Excluded Contracts.
2.5 No Assignment Without Consent. Notwithstanding anything to the
-----------------------------
contrary contained in this Agreement, to the extent that the sale, conveyance,
transfer, assignment or delivery or attempted sale, conveyance, transfer,
assignment or delivery to Buyer of any Purchased Property (including any
Contract) is prohibited by any applicable Law or would require any governmental
or third-party authorizations, approvals, consents or waivers and such
authorizations, approvals, consents or waivers shall not have been obtained
prior to the Closing, this Agreement shall not constitute a sale, conveyance,
transfer, assignment or delivery, or an attempted sale, conveyance, transfer,
assignment or delivery thereof, if any of the foregoing would constitute a
breach of applicable Law or the rights of any third party; provided, however,
that, except to the extent that a condition to Closing set forth in Article 6
relating to the foregoing shall not be satisfied, the Closing shall occur
notwithstanding the foregoing without any adjustment to the Purchase Price on
account of such required authorization. Following the Closing, the parties shall
use their commercially reasonable efforts, and shall cooperate with each other,
to obtain promptly such authorizations, approvals, consents or waivers;
provided, however, that neither Sellers nor Buyer nor any of their respective
Affiliates shall be required to pay any consideration therefor, other than
filing, recordation or similar fees payable to any Governmental Authority, which
fees shall be shared equally by Sellers and Buyer. Pending or in the absence of
such authorization, approval, consent or waiver, the parties shall cooperate
with each other in any reasonable and lawful arrangements to provide to Buyer
the benefits and liabilities of use of such Purchased Property including, if
permitted by the terms of any applicable Real Property Lease or applicable
Material Contract, through a sublease or subcontract in accordance with Article
4. If such authorization, approval, consent or waiver for the sale, conveyance,
transfer, assignment or delivery of any such Purchased Property is obtained,
Sellers shall promptly convey, transfer, assign and deliver, or cause to be
conveyed, transferred, assigned and delivered, such Purchased Property to Buyer.
ARTICLE 3
ARTICLE 3. PURCHASE PRICE
3.1 Purchase Price. The purchase price for the Purchased Property
---------------
shall be the sum of (i) eight hundred forty-three million three hundred fifty
thousand dollars ($843,350,000) (the "Base Purchase Price"), (ii) amounts
expended by Sellers to comply with Future Capital Expenditure Obligations
between the date of this Agreement and the Closing Date (the "Regulatory
Obligation Amount"), and (iii) the Non-Regulated Construction Work in Process
Amount, minus (iv) any Capital Expenditure Deficiency and (v) any Vacation
Proration Amount (assuming that Buyer receives a credit under Section 11.3.2,
but if Sellers receive a credit, the Vacation Proration Amount shall be added to
the Purchase Price).
3.2 Closing Date Estimate.
---------------------
(a) Not less than three (3) business days prior to the
Closing Date, Sellers will give to Buyer a notice, setting forth Sellers' good
faith estimate as of the Closing Date of (i) the Regulatory Obligation Amount
(the "Estimated Regulatory Obligation Amount"), (ii) the Non-Regulated
Construction Work in Process Amount (the "Estimated Non-Regulated Construction
Work in Process Amount"), (iii) any Capital Expenditure Deficiency and (v) any
Vacation Proration Amount.
(b) On the Closing Date, Buyer shall pay to Sellers an
amount equal to the sum of (i) the Base Purchase Price, (ii) the Estimated
Regulatory Obligation Amount, and (iii) the Estimated Non-Regulated Construction
Work in Process Amount, minus (iv) any Capital Expenditure Deficiency and (v)
any Vacation Proration Amount (assuming that Buyer receives a credit under
Section 11.3.2, but if Sellers receive a credit, the Vacation Proration Amount
shall be added to the Purchase Price) (the "Closing Date Amount"). The Closing
Date Amount shall be paid by delivery on the Closing Date of immediately
available funds in U.S. dollars by wire transfer to an account that Sellers
shall designate to Buyer at least two (2) business days prior to the Closing
Date. Payments from Buyer to Sellers for Earned End-User Accounts Receivable and
from Sellers to Buyer for Customer Advances and Customer Deposits will occur
subsequent to Closing in accordance with Article 10.
3.3 Closing Date Statement.
----------------------
(a) Within sixty (60) days after Closing Date, Sellers shall
prepare and deliver to Buyer a written statement (with appropriate supporting
documentation) of the Base Purchase Price, Regulatory Obligation Amount,
Non-Regulated Construction Work in Process Amount, any Capital Expenditure
Deficiency and any Vacation Proration Amount ("Closing Date Statement").
(b) Within thirty (30) days after receipt of the Closing
Date Statement, Buyer shall, in a written notice to Sellers, either accept the
Closing Date Statement or describe in reasonable detail any proposed adjustments
to the Closing Date Statement and the reasons therefore. If Sellers shall not
have received a notice of proposed adjustments within such thirty (30) day
period, Buyer will be deemed irrevocably to have accepted such Closing Date
Statement.
(c) Upon the acceptance of any Closing Date Statement by
Buyer, the parties shall, based thereupon, calculate the Base Purchase Price,
Regulatory Obligation Amount and Non-Regulated Construction Work in Process
Amount (collectively, the "Purchase Price"). If the Purchase Price as finally
determined above is greater than the Closing Date Amount, Buyer shall promptly,
but no later than three (3) business days after such acceptance, pay to Sellers
the amount of such difference. If the Purchase Price as determined above is less
than the Closing Date Amount, Sellers shall promptly, but no later than three
(3) business days after such acceptance, pay to Buyer the amount of such
difference.
(d) Sellers and Buyer shall negotiate in good faith to
resolve any disputes over any proposed adjustments to the Closing Date
Statement, provided that if any such dispute is not resolved within thirty (30)
days following Sellers' receipt of any proposed adjustments delivered by Buyer
pursuant to Section 3.3(b) , Buyer and Sellers jointly shall select an
independent public accounting firm that is nationally recognized in the United
States to resolve such disputes in accordance with the standards set forth in
this Section 3.3, which resolution shall be final and binding. The fees and
expenses of such accounting firm shall be shared by Buyer and Sellers in inverse
proportion to the relative amounts of the disputed amount determined to be for
the account of Buyer and Sellers, respectively.
(e) If Buyer disputes any portion of the Closing Date
Statement, the parties shall calculate the portion of the Closing Date Statement
that is not the subject of any dispute or proposed adjustment. If the undisputed
portion of the Closing Date Statement (i) is greater than the respective
estimated amounts paid on the Closing Date, Buyer shall promptly pay Sellers the
amount of such difference, or (ii) is less than the respective estimated amounts
paid on the Closing Date, Sellers shall promptly pay Buyer the amount of such
difference. Payments with respect to any undisputed portions of these
adjustments shall be made no later than three (3) business days after delivery
of the notice of the proposed adjustments. Upon resolution of any dispute over
any proposed adjustments as described above in Section 3.3(d), a party which is
determined to owe the other party an amount shall pay that amount promptly, but
no later than three (3) business days after resolution.
(f) Any amount payable pursuant to this Section 3.3 after
the date which is ninety (90) days following the Closing Date shall bear
interest from such ninetieth day through but excluding the date of payment, at a
rate of eight percent (8%) per annum. Such interest shall accrue daily on the
basis of a year of three hundred sixty-five (365) days and the actual number of
days for which interest is due and shall be payable together with the amount
payable pursuant to this Section 3.3. All amounts payable pursuant to this
Section 3.3 shall be paid by delivery of immediately available funds in U.S.
dollars by wire transfer to, in the case of amounts payable by Buyer, the
account identified by Sellers as described in 3.2 above or to an alternate
account that Sellers may designate on the Closing Date Statement and, in the
case of amounts payable by Sellers, to such account of Buyer as Buyer shall
designate in writing to Sellers.
3.4 Performance Deposit
-------------------
(a) Concurrently with the execution and delivery hereof,
Buyer shall pay to Sellers by wire transfer of immediately available funds the
sum of forty-two million one hundred sixty-seven thousand five hundred dollars
($42,167,500), an amount equal to five percent (5%) of the Base Purchase Price
(the "Deposit"), to be held by Sellers against payment of the Purchase Price and
as security for the performance by Buyer of its obligations under this
Agreement.
(b) Buyer may elect to deliver the Deposit to Sellers in
cash or in the form of an irrevocable, clean, standby letter of credit for the
same amount (the "Deposit L/C"). The Deposit L/C shall (i) be in a form
reasonably acceptable to Sellers, (ii) be issued in favor of Sellers under this
Agreement and (iii) be issued by a bank that has a long-term unsecured debt
rating of at least A+ by Standard & Poor's Rating Services and that is otherwise
reasonably satisfactory to Sellers. The Deposit L/C (and any replacement thereof
furnished in accordance with this Section 3.4(b) shall have an expiration date
no earlier than the first anniversary of the date of issuance thereof and shall
be automatically renewed from year to year unless stated not to be so renewed by
the issuer thereof in a written notice given to the Sellers not less than 30
days prior to the expiration thereof. In the event of the termination of the
Deposit L/C (and any replacement thereof furnished in accordance with the
provisions of this Section 3.4(b)), Buyer shall deliver to Sellers a replacement
letter or letters of credit in lieu thereof no later than 30 days prior to the
expiration of the preceding letter of credit. If Buyer shall fail to obtain any
replacement of the Deposit L/C (and/or any replacement thereof furnished in
accordance with the provisions of this Section 3.4(b)), then Sellers shall draw
down the full amount of the existing letter of credit and retain the same as
security for the covenants, agreements and obligations of Buyer under this
Agreement. Any replacement of any Deposit L/C shall be in a form reasonably
acceptable to Sellers. Buyer acknowledges that Sellers have agreed to accept the
Deposit L/C in lieu of a cash down payment against the Purchase Price solely as
an accommodation to Buyer.
(c) If the transfer of the Purchased Property as contem-
plated hereunder is consummated, then the Deposit shall be paid to Sellers at
the Closing and credited against the Base Purchase Price. If Buyer elects to
deliver the Deposit L/C in lieu of cash, Sellers shall draw down the full amount
of the Deposit L/C at the Closing and pay such proceeds to Sellers as a credit
against the Base Purchase Price.
(d) Sellers acknowledge that, upon two (2) business days
prior written notice to Sellers, Buyer shall have the right to deliver to
Sellers a cash payment of $42,167,500, and upon receipt of such payment, Sellers
shall return to Buyer the Deposit L/C.
(e) The parties hereto acknowledge and agree that their
respective rights and obligations related to the Deposit are described in
Section 13.3.
ARTICLE 4
REQUIRED APPROVALS, CONSENTS AND NOTIFICATIONS
4.1 State Regulatory Approval. Promptly after the date of this Agreement
-------------------------
Buyer and Sellers shall file the appropriate applications and notices with the
PUC, seeking orders permitting the transfer of service in the Purchased
Exchanges to Buyer (collectively, the "Regulatory Approvals"). Buyer will be
responsible for establishing the tariff for its post-Closing operations in the
Purchased Exchanges. Buyer agrees to use its commercially reasonable efforts to
obtain the Regulatory Approvals and Sellers agree to cooperate fully with Buyer
and with the applicable regulatory agency to obtain the Regulatory Approvals at
the earliest practicable date.
4.2 Bondholder Consents. Sellers shall use their commercially reasonable
-------------------
efforts to obtain from their Bondholders the termination or release, at Closing,
of all security agreements, mortgages, financing statements or other Liens
running in favor of the Bondholders and relating to the Purchased Property (such
termination or release being hereinafter referred to as the "Bondholder
Consents"). Buyer agrees to cooperate in good faith with Sellers in obtaining
the required Bondholder Consents.
4.3 Material Consents. Promptly after the date hereof, the parties
-----------------
shall use their commercially reasonable efforts to mutually seek the consent of
the lessor under any Real Property Lease with respect to a central office or any
license with respect to Switch Software which lease or license requires consent
as a condition to an assignment, and which is identified on Schedule 4.3 or
Schedule 8.1.8 (the "Material Consents"). If a lessor or licensor refuses to
consent to an assignment, and if the applicable lease or license permits a
sublease or sublicense without the consent of the lessor or licensor, the
parties hereto shall, effective as of the Closing, enter into a sublease or
sublicense upon terms and conditions as similar and comparable to an assignment
of the lease or license as is reasonably feasible.
4.4 FCC Consents. Promptly after the date of this Agreement, the parties
------------
shall use their commercially reasonable efforts to obtain (i) the FCC's consent
to the transfer of the FCC Licenses from Sellers to Buyer, (ii) the FCC consents
and waivers set forth on Schedule 4.4 and (iii) the FCC Final Orders (all such
consents, waivers or orders are collectively referred to as the "FCC Consents").
4.5 HSR Act Review. Within thirty (30) business days after the date of
--------------
this Agreement, the parties will make such filings as may be required by the HSR
Act with respect to the transactions contemplated by this Agreement. Thereafter,
the parties will file as promptly as practicable all reports or other documents
required or requested by the U.S. Federal Trade Commission ("FTC") or the U.S.
Department of Justice ("DOJ") pursuant to the HSR Act or otherwise and will
comply promptly with any requests by the FTC or the DOJ for additional
information concerning such transactions, so that the waiting period specified
in the HSR Act will expire as soon as reasonably possible after the execution
and delivery of this Agreement. Without limiting the foregoing, Sellers and
Buyer agree to use their commercially reasonable efforts to cooperate and oppose
any preliminary injunction sought by any Governmental Authority preventing the
consummation of the transactions contemplated by this Agreement. Buyer agrees to
pay all application fees required in connection with any filings under the HSR
Act.
Sellers and Buyer shall cause their respective counsel to furnish
each other such necessary information and reasonable assistance as the other may
reasonably request in connection with the preparation of necessary filings or
submissions under the provisions of the HSR Act. Sellers and Buyer will cause
their respective counsel to supply to each other copies of all correspondence,
filings or written communications by such party or its Affiliates with any
Governmental Authority or staff members thereof, with respect to the
transactions contemplated by this Agreement and any related or contemplated
transactions, except for documents filed pursuant to Item 4(c) of the
Hart-Scott-Rodino Notification and Report Form or communications regarding the
same documents or information submitted in response to any request for
additional information or documents pursuant to the HSR Act which reveal
Sellers' or Buyer's negotiating objectives or strategies or purchase price
expectations.
4.6 Notification. Each of the parties agrees to notify the others
------------
promptly upon learning of any fact or set of circumstances that would be
reasonably likely to delay or prevent receipt of a Regulatory Approval,
Bondholder Consent, FCC Consent, HSR clearance or other consent or approval
referred to in Article 4.
4.7 GTE/Bell Atlantic Merger. Notwithstanding anything else contained
------------------------
in this Agreement, Sellers and their Affiliates shall not be obligated to take
any action that would violate the terms of their agreements regarding the
Merger, or that would interfere with, delay or prevent the consummation of the
Merger; provided that Buyer shall not be obligated to proceed with the Closing
if the Merger has resulted in a Material Adverse Effect.
ARTICLE 5
PRE-CLOSING COVENANTS
5.1 Investigation by Buyer. Prior to the Closing, upon reasonable
----------------------
notice from Buyer to Sellers given in accordance with this Agreement and subject
to approval by Sellers' appointed representative (which shall not be
unreasonably withheld), Sellers will afford to the authorized representatives of
Buyer reasonable access during normal business hours to the Transferred Books
and Records, the Owned Real Property and the Leased Real Property, so as to
afford Buyer the opportunity to make such review, examination and investigation
of the Business and the Purchased Property as Buyer may reasonably request;
provided, however, that no environmental sampling or other testing shall be
performed without Sellers' prior written consent, which consent may be given or
withheld in Sellers' sole discretion. Buyer will not contact any employee,
customer or supplier of Sellers with respect to this Agreement, the matters
involved herein or the Purchased Property without the prior written consent of
Sellers. Nothing herein will obligate Sellers to take actions that would
unreasonably disrupt the normal course of the business of Sellers or violate the
terms of any applicable Law or any Contract to which Sellers or any of their
Affiliates is a party or to which any of their assets is subject. Any
information or documentation provided to Buyer or acquired by Buyer during this
investigation shall be deemed "Evaluation Material" as that term is defined in
the Confidentiality Agreement and shall be subject in all cases to the terms of
the Confidentiality Agreement.
5.2 Operation of the Business in the Ordinary Course.
------------------------------------------------
5.2.1 Preservation of Business. Except as contemplated on Schedule
5.2.1 or in connection with or relating to the Merger (and disclosed to Buyer)
or as otherwise consented to by Buyer prior to the Closing, from the date of
this Agreement until the Closing Sellers shall:
(a) Conduct the Business in the ordinary course consistent
with past practice and shall keep available to the Business its services and the
services of its Affiliates to the same extent generally available on the date
hereof;
(b) Operate the Business in substantially the same manner as
it is presently being conducted, and, with respect to the Business, refrain from
entering into any Contract that would be a Material Contract without the prior
consent of Buyer (which shall not be unreasonably withheld);
(c) Not institute or participate in any proceeding with
respect to, or otherwise change, amend or supplement any of its tariffs or make
any other filings (other than periodic reports) with the PUC without the prior
consent of Buyer (which shall not be unreasonably withheld) except as disclosed
on Schedule 8.1.15(a);
(d) Maintain the Purchased Property in good repair,
order and condition, reasonable wear and use excepted;
(e) Maintain insurance with respect to the Purchased
Property consistent with past practice;
(f) Make capital expenditures in accordance with Section
5.6; and
(g) Maintain the books and records of the Business substan-
tially in accordance with prior practice, except as changes are mandated by
Governmental Authorities or required by GAAP, in which event Sellers shall
promptly notify Buyer.
5.2.2 No Material Changes. Except as contemplated by this Agreement
or in connection with or relating to Merger (and disclosed to Buyer) or as
otherwise consented to by Buyer prior to the Closing, from the date of this
Agreement until the Closing, Sellers will not:
(a) Make any material change in the general nature of the
Business;
(b) Sell, lease or dispose of, or make any Contract for the
sale, lease or disposition of any Purchased Property, other than in the ordinary
course of business consistent with past practice;
(c) Increase the number of Active Employees other than in a
manner consistent with past practice, or increase the benefit provided under any
plans concerning employee benefits or increase the general rates of compensation
of their Transferred Employees, except (i) as required by Law, (ii) pursuant to
any Contract to which Sellers are a party existing on the date hereof, (iii) in
the ordinary course of business of Sellers consistent with past practice, or
(iv) as listed or described on Schedule 5.2.2(c);
(d) (i) Enter, amend, modify or terminate any Material
Contract or permit any of the foregoing to occur other than in the ordinary
course of business; or (ii) sell, transfer or otherwise dispose of any Purchased
Property other than in the ordinary course of business or as listed or described
on Schedule 5.2.2(d), or encumber any Purchased Property, except for Permitted
Encumbrances;
(e) Enter into any new written employment agreement, or
union agreement with, or commitment to, the Transferred Employees (including any
new commitment to pay retirement or other benefits or other amendments to
Sellers' retirement plans), provided that Sellers may enter into new union
agreements to the extent the new union agreements succeed any union agreement
that expires prior to the Closing; or
(f) Except as contemplated by this Agreement or the
Ancillary Agreements, enter into any transaction with any of their Affiliates
that contemplates (i) the transfer of any Purchased Property; or (ii) any other
contractual arrangement that will survive the Closing and not be terminable at
will by, and with no cost to, Buyer subsequent to the Closing.
5.3 Satisfaction of Conditions. Without limiting the generality or
--------------------------
effect of any provision of Article 6, the parties will use their commercially
reasonable efforts to satisfy promptly all the conditions required to be
satisfied prior to the Closing.
5.4 Approvals.
---------
(a) Between the date of this Agreement and the Closing Date,
Buyer and Sellers will (i) cooperate with one another and take all reasonable
steps to obtain, as promptly as practicable, all consents, approvals,
authorizations, waivers and permits of any Governmental Authorities required of
either party to consummate the transactions contemplated by this Agreement and
(ii) provide such other information and communications to any Governmental
Authority as may be reasonably requested.
(b) To the extent that any consents, approvals, author-
ization or waiver of a third party with respect to any Assigned Contract is
required in connection with the transactions contemplated by this Agreement,
Sellers shall use their commercially reasonable efforts to obtain such
authorization, consent, approval or waiver prior to the Closing Date.
5.5 Financial Statements. Sellers will cooperate with the independent
--------------------
auditors chosen by Buyer to audit the Financial Statements delivered to Buyer in
accordance with Section 8.1.21. Sellers' cooperation will include access to
workpapers and other supporting documents used in the preparation of the
Financial Statements as may be reasonably required by such auditors to render an
opinion, and cooperation with respect to such other financial statements as
Buyer may require with respect to the Business in order to comply with the
reporting requirements of the Securities and Exchange Commission under
Regulations S-K and S-X. Sellers will bear the cost of preparation of the
Financial Statements. Buyer will bear the cost of the audit and the cost of
preparation of any financial statements other than the Financial Statements.
Buyer acknowledges that the Financial Statements and any supporting documents
have been made available as an indication of the historical financial
performance and condition of the Business. Except to the extent that the
Financial Statements reflect intentional misrepresentation or fraud, or to the
extent that Sellers have breached their representations and warranties under
Section 8.1.21, Buyer agrees not to make any claims related to the performance
of the Business after the date of the Financial Statements on the basis of a
comparison to the Financial Statements.
5.6 Capital Expenditures. Sellers shall be obligated to make capital
--------------------
expenditures with respect to the Telephone Plant required to support normal
maintenance and customer growth in a manner consistent with established
regulatory performance objectives, which expenditures (exclusive of any Future
Capital Expenditure Obligations or Future Regulatory Obligations) shall not be
less than $17,500,000 during calendar year 1999, and which amount shall be
discounted on a pro rata daily basis to the extent that the Closing Date occurs
prior to December 31, 1999 (the "Capital Expenditure Amount"). The Purchase
Price shall be adjusted down, on a dollar-for-dollar basis, to the extent that
Sellers' actual capital expenditures are less than the Capital Expenditure
Amount (a "Capital Expenditure Deficiency"). In the event the Closing does not
occur prior to January 1, 2000, the Capital Expenditure Amount shall be
increased on a pro rata daily basis and Sellers shall be obligated to make
capital expenditures during fiscal year 2000 in the same relative amount, and
the Purchase Price shall be adjusted in the same manner described above for any
Capital Expenditure Deficiency occurring during the period after January 1,
2000. Between the date of this Agreement and the Closing Date, Sellers will
notify Buyer of any project involving Non-Regulated Construction Work in Process
in excess of $100,000.
5.7 Delivery of Interim Information. From the date of this Agreement
-------------------------------
until the Closing, Sellers shall furnish Buyer monthly reports concerning the
operating performance of the Business. Such reports shall contain such data as
typically reported to GTE management with respect to the Purchased Exchanges,
including revenue, access line counts, trouble indices, total year-to-date
capital expenditure actuals (on a quarterly basis only) indices and other
service measures. All information provided in accordance with this Section 5.7
shall be subject to compliance with the Confidentiality Agreement and to
compliance with applicable antitrust Laws.
5.8 Cooperation with Respect to Like-Kind Exchange. Buyer agrees that
----------------------------------------------
Sellers' transfer of the Purchased Property may, at Sellers' election, be
accomplished in a manner enabling such transfer to qualify as part of a
like-kind exchange of property covered by Section 1031 of the IRC. If Sellers so
elect, Buyer shall cooperate with Sellers (but without being required to incur
any out-of-pocket costs in the course thereof) in connection with Sellers'
efforts to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Sellers request in order to enable
Sellers to qualify such transfer as part of a like-kind exchange of property
covered by Section 1031 of the IRC (including any actions required to facilitate
the use of a "qualified intermediary" within the meaning of the United States
Treasury Regulations), and Buyer agrees that Sellers may assign all or part of
their rights (but no obligations) under this Agreement to a person or entity
acting as a qualified intermediary to qualify the transfer of the Purchased
Property as part of a like-kind exchange of property covered by Section 1031 of
the IRC. Buyer and Sellers agree in good faith to use reasonable efforts to
coordinate the transactions contemplated by this Agreement with any other
transactions engaged in by either Buyer or Sellers; provided that such efforts
are not required to include an unreasonable delay in the consummation of the
transactions contemplated by this Agreement.
5.9 Additional Exchange. Sellers agree to use their good faith best
--------------------
efforts to determine within fourteen (14) days of the date hereof whether Buyer
will be entitled to purchase the access lines located in the Seligman exchange.
The parties agree that if Sellers' management approves such purchase, Buyer will
acquire such lines at a price of $2,443,394 and under the terms of this
Agreement as if such access lines were included in the definition of Purchased
Property as of the date hereof. The parties agree that immediately upon such
approval of Buyer's purchase of the Additional Exchanges this Agreement will be
amended to (i) increase the Base Purchase Price by an amount of $2,443,394; (ii)
include the Additional Exchange on Schedule 1.1-C and (iii) within forty (40)
days of the date of this Agreement, make such other changes as may be necessary
or appropriate to accomplish the purposes of the second sentence of this Section
5.9.
ARTICLE 6
CONDITIONS PRECEDENT TO THE CLOSING
6.1 Conditions Precedent to Obligations of Buyer. The obligations of
--------------------------------------------
Buyer to consummate the Closing shall be subject to the satisfaction or waiver
by Buyer, at or prior to the Closing, of each of the following conditions, any
one or more of which may be waived at the option of Buyer:
6.1.1 No Misrepresentation or Breach of Covenants and Warranties.
Sellers shall have complied in all material respects with their covenants to be
performed in whole or in part prior to the Closing, and the representations and
warranties of Sellers in Section 8.1 shall be true and correct as of the
Closing, except for (i) such representations or warranties that are made
expressly as of and only as of an earlier date, which shall have been true and
correct as of such earlier date except as would not have a Material Adverse
Effect, and (ii) to the extent that any breach of such representations and
warranties has not had and is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect; and Sellers shall have delivered to
Buyer a certificate ("Sellers' Closing Certificate") in the form attached as
Schedule 6.1.1, dated the Closing Date and signed by an Executive Officer of
Sellers, certifying each of the foregoing, or specifying those respects in which
such covenants have not been performed or such representations and warranties
are not true and correct.
6.1.2 Documents. Sellers shall have delivered to Buyer all documents
required by Section 7.2.
6.1.3 HSR. All required waiting periods under the HSR Act shall
have expired or been terminated.
6.1.4 No Legal Obstruction. Each of the required Bondholder Consents
shall have been obtained, each consent required under Section 4.3 shall have
been obtained and each of the required Regulatory Approvals and FCC Consents
shall have been obtained, free of any special terms, conditions or restrictions
that are materially adverse to Buyer (other than any such approvals or consents
which, if not obtained, would not have a Material Adverse Effect); provided that
any Regulatory Approval that would have the effect of converting Buyer from a
Rate-of-Return Regulation Entity to a Price-Cap Regulation Entity shall be
deemed to have a Material Adverse Effect. For purposes of this Agreement, all
such approvals and consents shall be deemed to have been obtained upon the
granting thereof, and the expiration of any appeals period (a "Final Order"). In
addition, there shall not have been entered a preliminary or permanent
injunction, temporary restraining order or other judicial or administrative
order or decree in any jurisdiction, the effect of which prohibits the Closing.
6.1.5 No Material Adverse Effect. There shall not have occurred any
event or condition, which individually or in the aggregate has resulted, or
could reasonably be expected to result, in a Material Adverse Effect.
6.2 Conditions Precedent to Obligations of Sellers. The obligations of
Sellers to consummate the Closing shall be subject to the satisfaction or waiver
by Sellers, at or prior to the Closing, of each of the following conditions:
6.2.1 No Misrepresentation or Breach of Covenants and Warranties.
Buyer shall have complied in all material respects with its covenants to be
performed in whole or in part prior to the Closing, and the representations and
warranties of Buyer in Section 8.2 shall be true and correct in all material
respects as of the Closing, except for (i) representations or warranties made
expressly as of and only as of an earlier date, which shall have been true and
correct as of such earlier date except as would not have a Material Adverse
Effect, and (ii) to the extent that any breach of such representations and
warranties has not, individually or in the aggregate, had a Material Adverse
Effect, and Buyer shall have delivered to Sellers a certificate ("Buyer's
Closing Certificate") in the form attached as Schedule 6.2.1, dated the Closing
Date and signed by an Executive Officer of Buyer, certifying each of the
foregoing or specifying those respects in which such covenants have not been
performed or such representations and warranties are not true and correct.
6.2.2 Documents. Buyer shall have delivered to Sellers all documents
required by Section 7.3.
6.2.3 Delivery of Closing Date Amount. Buyer shall have delivered to
Sellers, in the manner specified in Section 3.2, the Closing Date Amount.
6.2.4 HSR. All required waiting periods under the HSR Act shall have
expired or been terminated.
6.2.5 No Legal Obstruction. Each of the required Bondholder Consents
shall have been obtained, and each of the required Regulatory Approvals and FCC
Consents shall have been obtained free of any special terms, conditions or
restrictions that are materially adverse to Sellers based upon good faith
business concerns that are not commercially unreasonable (other than any such
approvals or consents which, if not obtained, would not have a Material Adverse
Effect). For purposes of this Agreement, all such approvals and consents shall
be deemed to have been obtained upon the granting of a Final Order. In addition,
there shall not have been entered a preliminary or permanent injunction,
temporary restraining order or other judicial or administrative order or decree
in any jurisdiction, the effect of which prohibits the Closing.
ARTICLE 7
THE CLOSING
7.1 The Closing. Subject to the terms and conditions of this Agreement,
-----------
the closing of the purchase and sale of the Purchased Property and the
assumption of the Assumed Liabilities (the "Closing") shall be held at 9 A.M.
local time at the offices of GTE Network Services at 600 Hidden Ridge, Irving,
Texas 75038, on the date agreed upon by the parties, provided such date shall be
(i) the last business day of the month, and (ii) at least five (5) business
days, but not more than ninety (90) days, after the date either party notifies
the other in writing of its determination that all required Regulatory
Approvals, Bondholder Consents, the Material Consents and FCC Consents have been
obtained, or at such other time and place as the parties may agree (the "Closing
Date"). Such Closing shall be deemed to have occurred as of 11:59 P.M., local
time, on the Closing Date. Sellers' ownership and operation of the Purchased
Property shall be deemed to cease immediately prior to the Closing.
7.2 Sellers' Obligations at Closing. At the Closing, Sellers shall
-------------------------------
deliver to Buyer the following documents:
(a)(i) The Bill of Sale and Assignment and Assumption
Agreement, (ii) subject to Permitted Encumbrances, special warranty deeds in
respect of the Owned Real Property, and (iii) subject to Section 2.5,
assignments of the Assigned Contracts or to the extent set forth in Section 4.3,
sublicenses of certain Assigned Contracts. For purposes of this Agreement, the
term "Bill of Sale and Assignment and Assumption Agreement" means the form
attached hereto as Schedule 7.2(a) executed by Sellers;
(b) A legal opinion from William Mundy, general counsel for
GTE Network Services, as counsel for Sellers, dated as of the Closing Date and
in the form of Schedule 7.2(b);
(c) Sellers' Closing Certificate;
(d) Instruments of assignment of the Real Property Leases
and Real Property Interests or, to the extent set forth in Section 4.3,
subleases for the Leased Real Property;
(e) Mortgage satisfactions, UCC Form 3 Termination
Statements and other instruments necessary to remove, release and terminate all
Liens held by any party on the Purchased Property (except for Permitted
Encumbrances);
(f) All of the documents and papers required of Sellers as
conditions to Closing pursuant to Section 6.1, including the Regulatory
Approvals, Bondholder Consents and FCC Consents;
(g) A certificate substantially in the form of Schedule
7.2(g) certifying that Sellers is not a "foreign person" within the meaning of
Section 1445(b)(2) of the IRC;
(h) The License Agreement;
(i) All documentation and information required to be
delivered by Sellers prior to Closing pursuant to Article 11; and
(j) Such other documents as Buyer may reasonably request.
7.3 Buyer's Obligations at Closing. At the Closing, Buyer shall deliver
------------------------------
to Sellers the following:
(a) The Closing Date Amount in the manner specified in
Section 3.2;
(b) The Bill of Sale and Assignment and Assumption Agreement
and the Ancillary Agreements executed by Buyer;
(c) A legal opinion from Boles, Boles & Ryan, counsel to
Buyer dated as of the Closing Date and in the form of Schedule 7.3(c);
(d) Buyer's Closing Certificate;
(e) All other documents and papers required of Buyer as
conditions of Closing pursuant to Section 6.2, including the Regulatory
Approvals; and
(f) Such other documents as Sellers may reasonably request.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.1 Representations and Warranties of Sellers. Sellers jointly and
-----------------------------------------
severally represent and warrant to Buyer as follows:
8.1.1 Authorization and Effect of Agreement. Sellers have the
requisite corporate power and authority to execute and deliver this Agreement
and the Ancillary Agreements and to perform their obligations hereunder and
thereunder. The execution and delivery by Sellers of this Agreement and the
Ancillary Agreements and the fulfillment of their obligations under this
Agreement and the Ancillary Agreements have been duly authorized by all
necessary corporate action on the part of Sellers and, to the extent required by
Law, any entity that controls the Sellers. This Agreement and the Ancillary
Agreements have been or will be duly executed and delivered by Sellers and,
assuming the due execution and delivery of this Agreement and the Ancillary
Agreements by Buyer, constitute valid and binding obligations of Sellers
enforceable in accordance with their terms subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights of
creditors generally and subject to the exercise of judicial discretion in
accordance with principles of equity
8.1.2 No Restrictions Against Sale or Assignment of the Purchased
Property. The execution and delivery of this Agreement and the Ancillary
Agreements by Sellers do not, and prior to Closing will not, and the fulfillment
by Sellers of its obligations under this Agreement and the Ancillary Agreements
will not (i) conflict with or violate any provision of their certificates of
incorporation or bylaws, (ii) subject to obtaining the approvals and or consents
referred to in Section 2.5, Article 4 and Schedule 8.1.11(a-e), conflict with,
violate or result in the breach of any provision of any Material Contract, or
(iii) result in the creation of any Lien (other than Permitted Encumbrances)
upon any of the Purchased Property under (a) any Material Contract or (b) any
Law applicable to any of the Purchased Property, except in the case of clauses
(ii) or (iii) for any such conflict, violation, breach or Lien that would not
have a Material Adverse Effect.
8.1.3 Consents, Approvals and Permits of Governmental Authorities.
Except as set forth in Schedule 8.1.3:
(a) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
to be obtained or made by or with respect to Sellers or in connection with the
execution and delivery of this Agreement and the Ancillary Agreements by Sellers
or the fulfillment by Sellers of their obligations under this Agreement and the
Ancillary Agreements, except (i) FCC Consents and HSR Act clearance, (ii) the
Regulatory Approvals, and (iii) any consent approval, order or authorization or
registration declaration or filing, which if not obtained or made would not have
a Material Adverse Effect.
(b) Sellers hold valid permits, licenses, franchises,
approvals and authorizations issued or granted by any Governmental Authority and
adequate for the operation of the Business as currently conducted, except to the
extent absence of any such permit, license, franchise, approval or authorization
would not have an Material Adverse Effect.
8.1.4 No Violation of Law. Except as indicated in Schedule 8.1.4,
the execution and delivery of this Agreement and the Ancillary Agreements and
the fulfillment by Sellers of its obligations under this Agreement and the
Ancillary Agreements will not violate any applicable Law, except where such
violation would not reasonably be expected to have a Material Adverse Effect.
8.1.5 Corporate Organization. Sellers are corporations duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and are duly qualified to conduct business in Arkansas. Sellers have
full power and authority to own their properties and to carry on the Business as
it is now being conducted and to own, or hold under lease or Contract the
Purchased Property.
8.1.6 Brokers. Sellers have not paid or become obligated to pay any
fee or commission to any broker, finder, investment banker or other intermediary
in connection with the transactions contemplated by this Agreement in such a
manner as to give rise to a valid claim against Buyer or any of the Purchased
Property for any broker's or finder's fees or similar fees or expenses.
8.1.7 Title to Owned Real Property. As of the date hereof, the
address and a general description of each item of Owned Real Property are set
forth on Schedule 8.1.7(a). Sellers have good fee simple title to all of the
Owned Real Property, free and clear of any Lien other than Permitted
Encumbrances and Liens of the Bondholders identified on Schedule 8.1.7(b).
Sellers represent that the only creditors that have a Lien (other than any
Permitted Encumbrances) on any of the Owned Real Property are the Bondholders
identified on Schedule 8.1.7(b). The Owned Real Property set forth on Schedule
8.1.7(a) constitutes substantially all of the Owned Real Property used in the
Business during calendar year 1998 and located in the Purchased Exchanges,
except as such (i) has been disposed of since January 1, 1998 in the ordinary
course of business, or (ii) would not have a Material Adverse Effect.
8.1.8 Real Property Leases. Schedule 8.1.8 sets forth (i) a list of
all Real Property Leases as of the date hereof and, except for such Real
Property Leases as may have been executed or terminated in accordance with
Section 5.2, as of the Closing Date, and (ii) all Real Property Leases used in
the Business and with respect to property located in the Purchased Exchanges
during calendar year 1998 except such as (1) have been executed or terminated
since January 1, 1998 in the ordinary course of business, or (2) would not have
a Material Adverse Effect. Each of the leases for the Leased Real Property is
enforceable in accordance with its terms, subject to bankruptcy, insolvency and
other similar laws affecting the rights of creditors generally and subject to
the exercise of judicial discretion in accordance with the principles of equity,
and except as otherwise disclosed in Schedule 8.1.8, there is not under any
lease any material default or a material breach of covenant by Sellers.
8.1.9 Tangible Assets. All of the tangible Purchased Property is
in substantially good operating condition and repair, normal wear and tear
excepted. Except as set forth on Schedule 8.1.9 or elsewhere in this Agreement,
Sellers have, or as of Closing will have, good title to each item of tangible
Purchased Property (other than Real Property Interests, representations with
respect to which are included in Section 8.1.7 and 8.1.8 hereof, and office
equipment or vehicles subject to leases) with a fair market value in excess of
$10,000, free and clear of any Lien (other than Permitted Encumbrances). Sellers
have not received any written notice within the past twelve(12) months of a
violation of any ordinances, regulations or building, zoning or other Laws with
respect to such assets that would have a Material Adverse Effect. EXCEPT AS
EXPRESSLY PROVIDED IN THIS SECTION 8.1.9, SELLER MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE CONDITION OR FITNESS OF THE TANGIBLE
PURCHASED PROPERTY AND HEREBY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR WARRANTY AGAINST INFRINGEMENT.
8.1.10 No Material Adverse Change. Except as disclosed in Schedule
8.1.10 or as may be related to the Merger (and disclosed to Buyer), between
December 31, 1997 and the date of this Agreement there has not occurred (i) any
event or condition that would have a Material Adverse Effect; (ii) any increase
in compensation payable or to become payable by Sellers to any of their
Transferred Employees or agents, other than normal merit or promotional
increases made in the ordinary course of business consistent with past practice,
other than Sellers' obligation to make payments for service prior to Closing
under the retention pay program announced in connection with the network
business repositioning of Sellers and its Affiliates; or (iii) any amendment or
termination by Sellers of any Material Contract, except any amendment or
termination in the ordinary course of business.
8.1.11 Material Contracts. Except for the agreements set forth on
Schedule 8.1.11 subparts (a) through (d) (all such contracts being referred to
herein as the "Material Contracts"), there is no Assigned Contract (other than
the Assigned Contracts entered into after the date of this Agreement in the
ordinary course of business) that is:
(a) an agreement containing a non-compete agreement or other
covenant that in either case would by its terms limit the freedom of Buyer
following the Closing to compete in any material respect with respect to the
Business with any third party, other than any such agreement or covenant which
does not materially impair the continued operation of the Business as it is
currently conducted;
(b) an agreement granting a Lien with respect to any of the
Purchased Property (other than a Permitted Encumbrance or Lien of a Bondholder);
(c) an agreement for the sale, lease or encumbrance
(other than a Permitted Encumbrance or Lien of a Bondholder) of any material
Purchased Property (including any interconnection agreements) or grant of any
preferential rights to purchase any material Purchased Property in each case
outside the ordinary course of business; or
(d) an agreement other than as set forth above with respect
to which the aggregate amount to be received or paid thereunder with respect to
calendar year 1999 is expected to exceed $100,000 based on the payments which
have been made under such agreement with respect to calendar year 1998, to the
extent applicable.
Except as set forth on Schedule 8.1.11, to the knowledge of Sellers, each of the
Material Contracts is valid, binding and in full force and effect and is
enforceable by Sellers or Sellers' Affiliates, as applicable, in accordance with
its terms, except for any such failure to be valid, binding, in full force and
effect or enforceable that is not reasonably likely to have a Material Adverse
Effect. Except as set forth on Schedule 8.1.11, to the knowledge of Sellers,
Sellers and Sellers' Affiliates have performed all material obligations required
to be performed by them to date under the Material Contracts, and they are not
(with or without the lapse of time or the giving of notice, or both) in breach
or default thereunder and, to the knowledge of Sellers, no other party to any
Material Contract is (with or without the lapse of time or the giving of notice,
or both) in breach or default in any respect thereunder, in each case except for
such noncompliance, breaches and defaults that, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect. As of
the date hereof, neither Sellers nor any Sellers' Affiliate has, except as
disclosed on Schedule 8.1.11, received any written notice of the intention of
any party to terminate any Material Contract. Except as set forth in Schedule
8.1.11, no consents or approvals are required from third parties with respect to
the assignment of any Material Contract. Complete and correct copies of all the
Material Contracts, together with all modifications and amendments thereto to
the date of this Agreement, have been made available to Buyer or its
representatives.
8.1.12 Insurance. The Purchased Property of an insurable nature and
of a character usually insured by companies carrying on similar businesses is
insured under insurance policies or self insured in such amounts and against
such losses or casualties as is usual in Sellers' industry. Effective at 11:59
P.M. on the Closing Date, the coverage under the insurance policies and programs
applicable to the Purchased Property will be terminated. Thereafter, Buyer will
be responsible for providing all insurance coverage for the Purchased Property.
8.1.13 Taxes. Except as disclosed on Schedule 8.1.13, (i) all Tax
Returns required to be filed by Sellers on or before the Closing Date have or
will have been filed, and all Taxes shown as due and payable on such Tax Returns
have been or will be paid by Sellers when required by law; (ii) no deficiencies
or assessments for any Taxes have been asserted in writing or assessed against
Sellers that remain unpaid and that individually or in the aggregate are
material to the Business; (iii) Sellers have withheld all required federal,
state and local payroll Taxes relating to the Business and have remitted or will
remit all amounts required to be remitted to the appropriate Taxing authorities;
(iv) there are no Tax Liens upon any of the Purchased Property except for
statutory liens covering Taxes not yet due and payable; (v) Sellers are not a
"foreign persons" within the meaning of Section 1445(b)(2) of the IRC and shall
provide an appropriate certificate for purposes of Section 1445(b)(2) of the
IRC; and (vi) there are no material, current audits or material audits for which
written notice has been received or, to the knowledge of Sellers, for which
verbal notice has been received (in either case, specifically with respect to
the Business).
8.1.14 No Material Claims or Suits. Except as disclosed in Schedule
8.1.13 or Schedule 8.1.14, there are no claims, actions, lawsuits or legal
proceedings pending before any Governmental Authority, or, to the knowledge of
Sellers threatened, against or affecting the Business or Purchased Property that
in Sellers' opinion, if determined adversely to Sellers, would reasonably be
expected to have a Material Adverse Effect on the Business or materially
adversely affect ability of Sellers to consummate the transactions contemplated
hereby.
8.1.15 Tariffs; FCC Licenses.
(a) Schedule 8.1.15(a) sets forth a list of all regulatory
tariffs applicable to the Business. Such tariffs stand in full force and effect
on the date of this Agreement in accordance with all terms, and there is no
outstanding notice of cancellation or termination or, to Sellers' knowledge, any
threatened cancellation or termination in connection therewith, nor are Sellers
subject to any restrictions or conditions applicable to their regulatory tariffs
that limit or would limit the operation of the Business (other than restrictions
or conditions generally applicable to tariffs of that type). Each such tariff
has been duly and validly approved by Sellers' regulatory agency. Sellers are
not in material default under the terms and conditions of any such tariff and
there is no basis for any claim of default by Sellers in any material respect
under any such tariff. Except as disclosed on Schedule 8.1.15(a), there are no
applications by Sellers or complaints (other than end-user complaints), or
petitions by others or proceedings pending or threatened before the PUC relating
to the Business or its operations or the regulatory tariffs. To the knowledge of
Sellers, there are no material violations by subscribers or others under any
such tariff. A true and correct copy of each tariff set forth on Schedule
8.1.15(a) has been delivered or made available to Buyer.
(b) Schedule 8.1.15(b) sets forth a list of all FCC Licenses
held by Sellers and used in the operation of the Business. Except as set forth
on Schedule 8.1.15(b), (i) each such FCC License is in full force and effect on
the date of this Agreement in accordance with its terms, (ii) there is no
outstanding notice of cancellation or termination or, to Sellers' knowledge, any
threatened cancellation or termination in connection therewith, nor (iii) are
any of such FCC Licenses subject to any restrictions or conditions that limit
the operation of the Business (other than restrictions or conditions generally
applicable to licenses of that type). Subject to the Communications Act of 1934,
as amended, and the regulations thereunder, the FCC Licenses are free from all
security interests, liens, claims, or encumbrances of any nature whatsoever.
There are no applications by Sellers or complaints (other than individual
end-user complaints that would not cause a Material Adverse Effect) or petitions
by others or proceedings pending or threatened before the FCC relating to the
Business or the FCC Licenses that, in Sellers' opinion, would reasonably be
expected to have a Material Adverse Effect on the Business.
8.1.16 Employee Matters.
(a) Sellers have provided by letter of even date herewith
the name, annual compensation, incentive compensation target, job title, job
location and collective bargaining unit status as of March 17, 1999 of each
person employed by Sellers at a location in the Purchased Exchanges who is
expected to be a Transferred Employee. Schedule 8.1.16(a) lists (and identifies
the sponsor of) each material "Employee Pension Benefit Plan," as that term is
defined in Section 3(2) of ERISA, each material "Employee Welfare Benefit Plan,"
as that term is defined in Section 3(1) of ERISA (such plans being hereinafter
referred to collectively as the "ERISA Plans"), and each other material
retirement, pension, profit-sharing, money purchase, deferred compensation,
incentive compensation, bonus, stock option, stock purchase, severance pay,
unemployment benefit, vacation pay, savings, medical, dental, post-retirement
medical, accident, disability, weekly income, salary continuation, health, life
or other insurance, fringe benefit, or other employee benefit plan, program,
agreement, or arrangement maintained or contributed to by Sellers or their
Affiliates in respect of or for the benefit of any Transferred Employee or
former employee of Sellers, excluding any such plan, program, agreement, or
arrangement maintained or contributed to solely in respect of or for the benefit
of Transferred Employees or former employees employed or formerly employed by
Sellers outside of the United States, as of the date hereof (collectively,
together with the ERISA Plans, referred to hereinafter as the "Plans"). Schedule
8.1.16(a) also includes a list of each material written employment, severance,
termination or similar-type agreement between Sellers and their Affiliates and
any Transferred Employee (the "Employment Agreements"). Except for retention
bonuses paid in connection with the closing of the transactions contemplated by
this Agreement and except as otherwise disclosed on Schedule 8.1.16(a), the
execution and delivery of this Agreement by Sellers and the performance of this
Agreement by Sellers will not directly result now or at any time in the future
in the payment to any Transferred Employee of any severance, termination, or
similar-type payments or benefits being paid to any Transferred Employee.
(b) Except as set forth on Schedule 8.1.16(b):
(i) Neither Sellers nor any of their Affiliates, any
of the ERISA Plans, any trust created thereunder, or any trustee or
administrator thereof, has engaged in any transaction as a result of which
Sellers, any of their Affiliates or the Business could be subject to any
material liability pursuant to Section 409 of ERISA or to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed pursuant to
Section 4975 of the IRC; and
(ii) Since the effective date of ERISA, no material
liability under Title IV of ERISA has been incurred or is reasonably expected to
be incurred by Sellers, any of their Affiliates or the Business (other than
liability for premiums due to the PBGC), unless such liability has been, or
prior to the Closing Date will be, satisfied in full.
(c) Except as set forth on Schedule 8.1.16(c), with respect
to the Plans other than those Plans identified on Schedule 8.1.16(d) as
"multiemployer plans":
(i) the PBGC has not instituted proceedings to
terminate any Plan that is subject to Title IV of ERISA (the "Retirement
Plans");
(ii) none of the ERISA Plans has incurred an "accumu-
lated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of
the IRC), whether or not waived, as of the last day of the most recent fiscal
year of each of the ERISA Plans ended prior to the date of this Agreement;
(iii)each of the Plans has been operated and admin-
istered in all material respects in accordance with its provisions and with all
applicable laws;
(iv) each of the ERISA Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the IRC and, to the extent
applicable, Section 401(k) of the IRC, has been determined by the IRS to be so
qualified, and nothing has occurred since the date of the most recent such
determination (other than the effective date of certain amendments to the IRC,
the remedial amendment period for which has not yet expired) that would
adversely affect the qualified status of any of such ERISA Plans; and
(v) there are no pending material claims by or on
behalf of any of the Plans, by any employee or beneficiary covered under any
such Plan, or otherwise involving any such Plan (other than routine claims for
benefits and routine expenses).
(d) Except as set forth on Schedule 8.1.16(d), none of
the ERISA Plans is a "multiemployer plan," as that term is defined in Section
3(37) of ERISA, and with respect to any such multiemployer plans (as so defined)
listed in Schedule 8.1.16(d), neither Sellers nor any of their Affiliates have
not made or incurred a "complete withdrawal" or a "partial withdrawal," as such
terms are respectively defined in Sections 4203 and 4205 of ERISA that would
result in the incurrence of a material liability by Sellers, any of their
Affiliates or the Business, and the transactions contemplated herein shall not
constitute a "complete withdrawal" or a "partial withdrawal" as such terms are
defined in Sections 4203 and 4205 of ERISA, respectively.
(e) Except as set forth on Schedule 8.1.16(e), (i) none of
the Transferred Employees are represented by a labor union or labor
organization, and (ii) Sellers are not subject to any collective bargaining
agreement covering any Transferred Employee. There are currently no strikes,
slowdowns, work stoppages or lockouts by or with respect to any Transferred
Employee covered by collective bargaining agreements. Except as set forth on
Schedule 8.1.16(e), to the best knowledge of Sellers, during the twelve (12)
months preceding the date of this Agreement, there have not been any union
organizational campaigns by or directed at Transferred Employees.
(f) Sellers will make available to Buyer, prior to the
Closing Date, a list of those Transferred Employees that Sellers believe to have
participated in the health or dependent care reimbursement accounts of Sellers,
together with the elections made prior to the Closing Date with respect to such
accounts through the Closing Date.
8.1.17 Schedules of Telephone Plant. Schedule 8.1.17 sets forth,
as of December 31, 1998 and, except for such changes as may occur pursuant to
Section 5.2, as of the Closing Date, a materially accurate summary of the book
value of the Telephone Plant (except for Real Property Interests and Real
Property Leases) and Material and Supply Inventory as reflected in Sellers'
continuing property records. Schedule 8.1.17 summarizes substantially all
Telephone Plant used in the Business (other than Excluded Property and the GTE
Telecom Assets) during calendar year 1998 and located in the Purchased
Exchanges, except such as (i) has been disposed of in the ordinary course of
business since January 1, 1998, or (ii) would not have a Material Adverse
Effect.
8.1.18 Schedule of Real Property Interests. To the knowledge of
Sellers and as of the date of this Agreement, Schedule 8.1.18 sets forth a true
and accurate list of all its Real Property Interests.
8.1.19 Environmental Matters. Except as set forth in Schedule 8.1.19
(which Sellers may supplement within 30 days of the date hereof with respect to
Leased Real Property):
(a) Sellers' current use of the Owned Real Property or
Leased Real Property materially complies with Environmental Requirements;
(b) No Liens under any Environmental Requirement have been
or are imposed on any of the Owned Real Property, except for such Liens as would
not have a Material Adverse Effect;
(c) No action, proceeding, revocation proceeding, procedure,
writ, injunction or claim is pending, or to Sellers' knowledge threatened,
concerning any Environmental Requirement and relating to any of the Owned Real
Property, except as would not have a Material Adverse Effect;
(d) Sellers have obtained or filed for all permits,licenses,
registrations, and other approvals and has made all reports and notifications
required under any Environmental Requirements in connection with the Owned Real
Property, except as would not have a Material Adverse Effect; and
(e) There are no present actions, activities, circumstances,
conditions, events,or incidents relating to Sellers' use of any of the Owned
Real Property or Leased Real Property that would reasonably be expected to
involve Sellers in any material litigation under the Environmental Requirements,
or impose upon Sellers any material liability related to any Environmental
Requirements.
8.1.20 Schedule of Joint Construction Projects. Schedule 8.1.20 sets
forth a list of all Joint Construction Projects for which Buyer is to assume
liability as of the Closing.
8.1.21 Financial Statements. Schedules 8.1.21(a), 8.1.21(b) and
8.1.21(c) present the estimated income statement, estimated balance sheet and
estimated statement of cash flows, respectively for the Business for the years
ended December 31, 1997 and December 31, 1998 (collectively, the "Financial
Statements"). The Financial Statements have been prepared based on the books and
records of Sellers. Such books and records have been maintained in accordance
with GAAP. However, because the Business represents only a portion of Sellers,
the Financial Statements are based on the extensive use of estimates and
allocations. Sellers believe these estimates and allocations have been performed
on a reasonable basis and such Financial Statements materially reflect the
results of operations for the periods set forth therein. However, Buyer
acknowledges that (i) the Financial Statements themselves may not be consistent
with the applicable regulations of the FCC or state regulatory authorities, and
(ii) because the Business represents only a portion of Sellers, the Buyer is not
acquiring significant support elements located outside the Purchased Exchanges,
and Buyer will operate under new tariffs, carrier contracts and other conditions
that may significantly impact the future revenue of the Business, the Financial
Statements may not be representative of the financial performance of the
Business during future periods.
8.1.22 Year 2000 Compliance.
(a) As of the Closing Date, Sellers shall have caused the
modification or remediation of the Automated Assets in accordance with
applicable manufacturer or vendor recommendations such that the Automated Assets
are Year 2000 Compliant; provided that any and all Buyer or third-party supplied
computer software, computer firmware and computer hardware that directly
interfaces with the Automated Assets, co-exists with the Automated Assets, or
indirectly influences the operation of the Automated Assets are also
demonstrated to be Year 2000 Compliant.
(b) Sellers shall be deemed to be in satisfaction of the
requirements of subsection (a) of this Section 8.1.22 to the extent that Sellers
have (i) performed on or before the Closing Date any modification or remediation
in accordance with applicable manufacturer or vendor recommendations for
achieving Year 2000 compliance or Year 2000 readiness, or (ii) received on or
before the Closing Date reasonable assurances from the applicable manufacturer
or vendor that an Automated Asset, without modification or remediation, is Year
2000 Compliant or Year 2000 ready.
(c) When used in this Section 8.1.22, the following terms
shall have the respective meanings given below:
"Automated Assets" means the computer software,
computer firmware, computer hardware (whether general or special purpose),
documentation, data, and other similar or related items of the automated,
computerized, and/or software system(s) that are provided by Sellers to Buyer as
part of the Purchased Exchanges pursuant to this Agreement.
"Calendar-Related" refers to the date values based on
the Gregorian calendar, as defined in Encyclopedia Britannica, 15th edition,
1982, page 602, and to all uses in any manner of those date values, including
without limitation manipulations, calculations, conversions, comparisons and
presentations.
"Date Data" means any Calendar-Related data in the
inclusive range January 1, 1900 through December 31, 2050, which the Automated
Assets use in any manner.
"System Date" means any Calendar-Related data value
in the inclusive range January 1, 1985 through December 31, 2035 (including the
natural transition between such values) which the Automated Assets shall be able
to use as their current date while operating.
"Year 2000 Compliant" means:
(i) As of the Closing Date, in connection with
Calendar-Related data and Calendar-Related processing of Date Data or of any
System Date, the Automated Assets will not malfunction, will not cease to
function and will not produce incorrect results; and
(ii) As of the Closing Date, the Automated Assets
will represent dates without ambiguity as to century when providing
Calendar-Related data to and accepting Calendar-Related data from other
automated, computerized and/or software systems and users by way of user
interfaces, electronic interfaces and data storage.
8.1.23 Access Line Count. As of December 31, 1998, the Purchased
Exchanges served a total of 213,651 access lines.
8.2 Representations and Warranties of Buyer. Buyer represents and
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warrants to Sellers as follows:
8.2.1 Corporate Organization.Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the state of Louisiana,
and is duly qualified to conduct business in Arkansas and has the requisite
corporate power and authority to own, lease or otherwise hold the assets owned,
leased or held by it.
8.2.2 Authorization and Effect of Agreement.Buyer has the requisite
corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements, to carry on the Business as presently conducted and to
fulfill all other obligations of Buyer under this Agreement and the Ancillary
Agreements. The execution and delivery by Buyer of this Agreement and the
Ancillary Agreements, and the fulfillment by it of its obligations under this
Agreement and the Ancillary Agreements have been duly authorized by all
necessary corporate action on the part of Buyer. Buyer has the requisite legal
capacity to purchase, own and hold the Purchased Property upon the consummation
of the sale of the Purchased Property. This Agreement and the Ancillary
Agreements have been duly executed and delivered by Buyer and, assuming the due
execution and delivery of this Agreement and the Ancillary Agreements by
Sellers, constitute valid and binding obligations of Buyer enforceable in
accordance with their terms subject to bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the rights of creditors generally
and subject to the exercise of judicial discretion in accordance with principles
of equity.
8.2.3 No Restrictions Against Purchase of the Purchased Properties.
The execution and delivery of this Agreement and the Ancillary Agreements by
Buyer do not, and the fulfillment by Buyer of its obligations under this
Agreement and the Ancillary Agreements will not, conflict with, violate or
result in the breach of any provision of the certificate of incorporation or
bylaws of Buyer or, conflict with, violate or result in the breach of any
contract to which Buyer is a party. No material consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority is required to be obtained or made by or with respect to Buyer in
connection with the execution and delivery of this Agreement by Buyer or the
fulfillment by Buyer of its obligations under this Agreement, except the filings
and approvals described in Article 4.
8.2.4 No Violation of Law. The execution and delivery of this
Agreement and the Ancillary Agreements and the fulfillment by Buyer of its
obligations under this Agreement and the Ancillary Agreements will not violate
any Law except to the extent any such violation would not have a material
adverse effect on the ability of Buyer to fulfill its obligations hereunder and
thereunder.
8.2.5 Financial Capacity.
(a) Buyer has sufficient cash or other sources of funds to
pay the Purchase Price in the manner specified in Section 3.1 and all related
fees and expenses.
(b) Buyer has sufficient financial resources to operate the
Business after the Closing Date. Without limiting the generality of the
foregoing, Buyer has sufficient financial resources to satisfy any applicable
requirement relating to financial capacity or capital imposed by any
Governmental Authority in any state in which the Business is conducted. Buyer is
solvent, is able to pay its debts as they become due, and owns property that has
both a fair value and a fair saleable value in excess of the amount required to
pay its debts as they become due.
8.2.6 Brokers. Buyer has not paid or become obligated to pay any
fee or commission to any broker, finder, investment banker or other intermediary
in connection with the transactions contemplated by this Agreement in such a
manner as to give rise to a valid claim against Sellers for any broker's or
finder's fees or similar fees or expenses.
8.2.7 Consents and Approvals of Governmental Authority. Subject to
Article 4 with respect to Regulatory Approvals and FCC Consents, no consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Authority or regulatory authority is required in connection with
the execution, delivery and performance of this Agreement by Buyer or the
consummation by Buyer of the transactions contemplated herein, except for
filings with the FTC and DOJ pursuant to the HSR Act, if required.
ARTICLE 9
CONTINUING BUSINESS RELATIONSHIPS
9.1 Transition Services Agreement. The parties agree to cooperate with
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each other to ensure that the transition of the ownership of the Purchased
Property proceeds with minimal disruption to the services being provided to
subscribers. The parties agree that it may be necessary for Sellers to assist
Buyer in converting Sellers' systems and processes with respect to the Purchased
Property to Buyer's systems and processes. Sellers and Buyer agree to execute a
separate "Transition Services Agreement" substantially in the form attached
hereto as Schedule 9.1 for the provision of such services.
9.2 Optional Services Agreement. It is understood and agreed that Buyer
---------------------------
may not have for a period of time after Closing Date, certain systems or
processes necessary to provide some basic customer services. Sellers will at
Buyer's request and for the fees described in Schedule 9.2 provide any or all of
the services described in a separate "Optional Services Agreement" signed by the
parties substantially in the form attached hereto as Schedule 9.2.
9.3 Directory Publishing.
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9.3.1 Assumption of Certain Directory Publishing Agreement Rights
and Obligations. Sellers are parties to a directories publishing agreement with
[GTE Directories Service Corporation n/k/a GTE Directories Corporation or GTE
Directories Corporation as purchaser of the rights and interests of Associated
Directory Services, Inc. f/k/a Mast Advertising and Publishing, Inc.] herein
"Publisher." This [These] agreement[s] is [are] identified in Schedule 9.3.1
attached hereto ("Publishing Agreement[s]"). Pursuant to this [these]
agreement[s] Publisher has the exclusive right and obligation to sell
advertising, and to publish, print and distribute directories containing
telephone numbers relating to the Purchased Exchanges.
At Sellers' option, Buyer agrees to execute an agreement effective
as of the Closing to assume and appropriately amend the Publishing Agreement[s]
as it[they] relate to the Purchased Exchanges, which agreement will extend the
length of the term of the Publishing Agreement[s] to expire not earlier than
December 31, 2001. Buyer agrees to allow Publisher to participate in any process
for negotiating future directory publishing agreements on terms no less
favorable than any other participant.
9.3.2 Co-Bound Directories Acknowledgement. Buyer acknowledges that
Publisher may have a pre-existing obligation (which Publisher may choose to
continue) to sell advertising, publish, print and distribute the telephone
numbers of third party local exchange telephone companies in the same directory
as the Purchased Exchanges ("Co-Bound" directory). Co-Bound directory agreements
of which Sellers are aware, if any, are identified on Schedule 9.3.2.
9.3.3 Meeting to Discuss Directory Publication. Within ninety (90)
days following the date of this Agreement, Buyer agrees to meet with Sellers and
Publisher for the purpose of having an initial discussion about the first
directory publication after the Closing Date. This meeting will be held at
Publisher's address unless otherwise agreed between the parties and Publisher.
All parties shall employ their respective commercially reasonable efforts to
ensure that directory publication is not interrupted following the Closing Date.
9.4 GTE Telecom Agreements. Buyer acknowledges that GTE Telecom will
----------------------
retain ownership of certain assets as well as related rights in connection with
fiber loop located in the Purchased Exchanges, all of which assets and rights
are listed on Schedule 2.3(g) (the "GTE Telecom Assets"). Buyer further
acknowledges that the GTE Telecom Assets may be co-located with the Purchased
Property, and may share certain easements, rights of way or other real property
interests. In order to clarify the relationship between Buyer and GTE Telecom
with respect to the GTE Telecom Assets, Buyer agrees to execute and deliver at
Closing certain agreements substantially in the form attached hereto as Schedule
9.4 (the "GTE Telecom Agreements").
ARTICLE 10
ADDITIONAL COVENANTS OF THE PARTIES
10.1 Intellectual Property.
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10.1.1 No License. Buyer and Sellers agree and understand that
except as expressly set forth in writing in the License Agreement and Section
10.1.3, Sellers have not granted any rights or licenses, express or implied, of,
and nothing shall constitute or be construed as a license of Sellers under any
Intellectual Property now or hereafter owned, obtained or licensable by Sellers
or under any Third Party Intellectual Property.
10.1.2 Infringement.
(a) Notwithstanding anything in this Agreement to the
contrary, Sellers shall have no obligation to defend, indemnify or hold harmless
Buyer or any of its Affiliates, from any damages, costs or expenses resulting
from any obligation, proceeding or suit based upon any claim that any activity
subsequent to the Closing Date engaged in by Buyer, a customer of Buyer's or
anyone claiming under Buyer, constitutes direct or contributory infringement,
misuse of, or misappropriation of, or inducement to infringe, any Third Party
Intellectual Property.
(b) Buyer shall defend, indemnify and hold harmless Sellers
and their Affiliates from and against any and all Indemnifiable Losses resulting
from any obligation, proceeding or suit based upon any claim alleging or
asserting direct or contributory infringement, or misuse or misappropriation of
or inducement to infringe by Sellers or any of their Affiliates of any Third
Party Intellectual Property, to the extent that such claim is based on, or would
not have arisen but for, activity conducted or engaged in subsequent to the
Closing Date by Buyer, a customer of Buyer's, or anyone claiming under Buyer.
10.1.3 Trademark Phaseout.
(a) Buyer acknowledges that Sellers or their Affiliates are
the owners of Excluded Marks that qualify as Excluded Property under Section
2.3. Buyer understands and agrees that the Excluded Marks, or any right to or
license of the Excluded Marks, are not being transferred pursuant to this
Agreement. Buyer acknowledges the exclusive and proprietary rights of Sellers
and their Affiliates in the use of the Excluded Marks, and Buyer agrees that it
shall not use the Excluded Marks (or any names, domain names, marks or indicia
confusingly similar to the Excluded Marks) except and to the extent expressly
set forth in this Section 10.1.3 or assert any rights or claims in such Excluded
Marks (or in any names, domain names, marks or when confusingly similar to the
Excluded Marks). After the Closing, all Excluded Marks of Sellers and their
Affiliates shall be replaced by Buyer, at Buyer's expense, as soon as possible,
but in no event later than ninety (90) days after the Closing Date for items
with Excluded Marks affixed to them which Buyer has continued to use in Buyer's
operation of the Business, including buildings, vehicles, heavy equipment, hard
hats, tools, tool boxes, kits (safety and others), signs, public (pay)
telephones, manual covers and notebooks. After the Closing, Buyer will not use,
and will destroy or deliver to Sellers, all such items with Excluded Marks
affixed to them that have no valid continuing use in Buyer's operation of the
Business, including items affecting customer or employee relations or items that
do not reflect Buyer's true identity. Specific items to be destroyed or returned
include items with Excluded Marks affixed to them including giveaways; order,
purchase or materials forms; requisitions; invoices; statements; time
sheets/labor reports; bill inserts; stationery; personalized note pads; maps;
organization charts; bulletins/releases; sales/price literature; manuals or
catalogs; report covers/folders; program materials; and materials such as media
contact lists/cards. The ninety (90) day time period for replacement of Excluded
Marks affixed to telephone directories that were already published or closed for
publication at the Closing Date shall be extended to the expiration date of such
directories.
(b) Buyer recognizes the great value of the goodwill
associated with the Excluded Marks, and acknowledges that the Excluded Marks and
all rights therein and the goodwill pertaining thereto belong exclusively to
Sellers and that the Excluded Marks have a secondary meaning in the minds of the
public. Buyer further agrees that any and all permitted use of the Excluded
Marks pursuant to this Agreement shall inure to the sole and exclusive benefit
of Sellers.
(c) Buyer agrees that any permitted use of the Excluded
Marks in the operation of the Business after the Closing shall be provided in
accordance with all applicable federal, state and local laws, and that the same
shall not reflect adversely upon the good name of Sellers or their Affiliates,
and that the operation of the Business will be of a high standard and skill.
(d) Buyer acknowledges that its failure to cease use of the
Excluded Marks as provided in this Agreement, or its improper use of the
Excluded Marks, will result in immediate and irreparable harm to Sellers and
their Affiliates. Buyer acknowledges and admits that there is no adequate remedy
at law for such failure to terminate use of the Excluded Marks, or for such
improper use of the Excluded Marks. Buyer agrees that in the event of such
failure or improper use, Sellers and their Affiliates shall be entitled to
equitable relief by way of temporary restraining order, or preliminary or
permanent injunction, or any other relief available under this Agreement.
(e) Buyer will not contest the ownership or validity of any
rights of Sellers or their Affiliates in the Excluded Marks.
10.1.4 Third Party Software. To the extent that the transfer of
Purchased Property by Sellers to Buyer under this Agreement results in the
transfer of possession to Buyer of software that at the Closing Date is Third
Party Intellectual Property, which software was located in and rightfully used
by Sellers in the geographical areas of the Purchased Exchanges prior to the
Closing Date in the normal and ordinary operation of the Business pursuant to
Contracts with the owners or licensors of such software ("Third Party
Intellectual Property Contracts"), then subject to Section 2.5 and the receipt
of any required consents from Switch Software vendors, effective as of the
Closing and provided that no payments to any Person other than a Switch Software
vendor are thereby required, Sellers hereby assign to Buyer, and Buyer hereby
accepts all rights and licenses, if any, to possess and use such software
pursuant to such Third Party Intellectual Property Contracts. Buyer agrees that
the acceptance by Buyer of such assignment of the Third Party Intellectual
Property Contracts includes the assumption by Buyer of obligations under such
Third Party Intellectual Property Contracts, including all obligations necessary
or incidental to the transfer of such rights and licenses. Buyer understands and
agrees that except as provided above in this Section 10.1.4, or as expressly
provided elsewhere in this Agreement or in another written agreement between
Buyer and Sellers, no rights or licenses to use or possess such software or any
Third Party Intellectual Property are transferred to Buyer. Buyer shall properly
dispose of, and shall not use, any software of which Buyer acquires possession
in connection with Purchased Property and which, after the Closing Date, Buyer
knows, or reasonably should know, is not the subject of a Third Party
Intellectual Property Contract that has been rightfully transferred to Buyer.
Sellers make no warranty or representation that any Third Party Intellectual
Property Contract or any right therein is assignable in whole or in part to
Buyer.
10.2 Effect of Due Diligence and Related Matters.
-------------------------------------------
(a) Buyer represents that it is a sophisticated entity that was
advised by knowledgeable counsel and financial advisors and, to the extent it
deemed necessary, other advisors in connection with this Agreement and has
conducted its own independent review and evaluation of the Purchased Property.
Accordingly, Buyer covenants and agrees that (i) except for the representations
and warranties set forth in this Agreement, Buyer has not relied and will not
rely upon any duty to disclose or any document or written or oral information
furnished to or discovered by it or its representatives, including any financial
data, (ii) there are no representations or warranties, express or implied,
statutory or otherwise, by or on behalf of Sellers or their Affiliates or
representatives except for those expressly set forth in this Agreement, and
(iii) to the fullest extent permitted by law, Buyer's rights and obligations
with respect to all of the foregoing matters will be solely as set forth in this
Agreement. Buyer further acknowledges and agrees that Sellers are not under any
duty to make any inquiry regarding any matter that may or may not be known to
Sellers or any of their officers, directors, employees or representatives.
(b) Upon the Closing, Buyer shall be deemed to have waived any
claim with respect to a breach of any representation, warranty, covenant or
obligation of Sellers, or any failure of a condition, hereunder of which Buyer
had actual knowledge on or prior to the date hereof; provided that Buyer shall
be deemed to have actual knowledge on or prior to the date hereof of the
information made available to Buyer and/or its representatives during Buyer's
due diligence review, and which information is contained in the Due Diligence
Materials.
(c) After the date of this Agreement and prior to the Closing Date,
Buyer shall promptly notify Sellers if Buyer obtains actual knowledge of any
actual or prospective breach of any representation, warranty, covenant or
obligation of Sellers, or any actual or prospective failure of a condition,
hereunder of which Buyer obtains actual knowledge. Failure to provide timely
notice of any such breach of which Buyer obtains actual knowledge after the date
hereof shall be deemed to constitute a waiver with respect to such breach.
10.3 Confidentiality. Whether or not the Closing occurs, the parties
---------------
hereto and their respective officers, directors, employees and representatives
will comply with the Confidentiality Agreement (to the extent not inconsistent
with this Agreement), the provisions of which are expressly incorporated herein
in their entirety by this reference.
10.4 Further Assurances. After the Closing, Sellers will use their
------------------
commercially reasonable efforts to furnish to Buyer such other instruments and
information as Buyer may reasonably request in order to convey to Buyer title to
the Purchased Property, to be delivered from time to time upon Buyer's
reasonable request.
10.5 Prorations. The following liabilities that call for periodic pay-
----------
ments shall be prorated between Sellers and Buyer: (i) utility charges (which
shall include water, sewer, electricity, gas and other utility charges) with
respect to the Owned Real Property, the property subject to the Real Property
Leases and customer owned equipment, (ii) rental charges (which shall include
rental charges and other lease payments under the Real Property Leases and Real
Property Interests), (iii) personal services (these services are charged for a
period which includes the Closing Date; this shall include contract labor), and
(iv) any Taxes that are imposed on a periodic basis and are payable for a
taxable period that includes (but does not end on) the Closing Date, including
but not limited to real and personal property Taxes, ad valorem Taxes, and
franchise fees or Taxes ("Periodic Taxes"). With respect to measurement periods
during which the Closing Date occurs (all such periods of time being hereinafter
called "Proration Periods"), the liabilities described in clauses (i), (ii) and
(iii) of the preceding sentence shall be apportioned between Sellers and Buyer
as of the Closing Date, with Buyer bearing only the expense thereof in the
proportion that the number of days remaining in the applicable Proration Period
after the Closing Date bears to the total number of days covered by such
Proration Period. Real and personal property Taxes and ad valorem Taxes shall be
prorated between Buyer and Sellers based on the relative periods the Purchased
Property was owned by each respective party during the fiscal period for which
Periodic Taxes were assessed by the Taxing jurisdiction (as such fiscal period
is reflected on the bill rendered by such taxing jurisdiction). Buyer and
Sellers shall pay or be reimbursed for Periodic Taxes (including instances in
which such property Taxes have been paid before the Closing Date) on this
prorated basis. If a payment on a Periodic Tax bill is due after the Closing,
the party that is legally required to make such payment shall make such payment
and promptly forward an invoice to the other party for its pro rata share, if
any. If the other party does not pay the invoice within thirty (30) calendar
days of receipt, the amount of such payment shall bear interest at the rate of
eight percent (8%) per annum. Similarly, all prepayments made by Sellers under
Assigned Contracts with respect to service or maintenance agreements requiring
periodic payments with third parties or license or other fees payable to third
parties shall be prorated on an appropriate basis between Sellers and Buyer.
10.6 Cost Studies/NECA Matters.
-------------------------
10.6.1 Prior to Closing. Sellers agree that, with respect to all
toll revenues, settlements, pools, separations studies or similar activities,
Sellers shall be responsible for (and shall receive the benefit or suffer the
burden of) any adjustments to contributions, or receipt of funds, by Sellers
resulting from any such activities that are related to the operation of the
Business or the ownership or operation of the Purchased Property prior to the
Closing Date. Specifically, this paragraph shall apply, but shall not be limited
to, any matters related to the National Exchange Carrier Association ("NECA") or
the Universal Service Administration Company ("USAC") including the Universal
Service Fund ("USF"), Long Term Support ("LTS"), and Telecommunications Relay
Services funds established by the FCC.
10.6.2 From and After Closing.
(a) In the case of Purchased Exchanges that comprise less
than an entire Study Area, the following shall apply:
(i) Rural and non-rural carriers currently receive USF
funds based on historic costs computed pursuant to Subpart F of Part 36 of the
FCC's rules. Beginning July 1, 1999 or a date thereafter determined by the FCC,
non-rural carriers shall not receive USF funds pursuant to Part 36, but will
receive support based on forward-looking economic costs pursuant to Part 54.
Sellers will take all steps necessary to ensure that, for each Transitional
Year, Buyer receives a pro rata share of any USF funds distributed during each
year. Buyer's pro rata share of such USF funds for a given Transitional Year
shall be determined for each Acquired Local Loop by multiplying the USF funds
attributable to such loop for that year times the number of months of that year
that such loop is owned by the Buyer.
(ii) Buyer shall make all USF filings that are required
under FCC rules after the Closing Date,and Sellers shall provide such reasonable
assistance as is required in order to make such filings.
(iii) Notwithstanding the foregoing, Buyer's right to
receive a pro rata share of USF is conditioned upon Buyer's payment, from and
after the Closing Date, of a pro rata share of the annual universal service
contribution liability assessed by the USAC based on end-user retail revenues
for the previous year generated by assets being sold. The resulting Buyer's
annual USF obligation for assets purchased shall be prorated in proportion to
the number of months in the year from and after the Closing Date.
(b) In the case of Purchased Exchanges that comprise an
entire Study Area, the following shall apply:
(i) Buyer shall receive all USF funds, from and after
the Closing Date, as determined by USAC from data submitted by Sellers prior to
Closing Date pursuant to FCC Rules and Regulations as stated in Part 36.611 and
Part 36.612 for rural carriers and Part 54 for non-rural carriers. After Closing
Date Buyer shall make all submissions and filings for USF funds for all years
for which Sellers had not made a submission prior to Closing Date in accordance
with FCC Rules and Regulations. Within a reasonable time after Buyer's written
request, Sellers shall furnish to Buyer such necessary information regarding
Sellers' ownership of the Purchased Property during any year for which Buyer
shall make a submission, and such reasonable assistance as required in
connection with Buyer's preparation of necessary filings or submissions.
(ii) Notwithstanding the foregoing, Buyer's right to
receive all USF revenue is conditioned upon Buyer's payment, from and after the
Closing Date, of all universal service contribution liability assessed by USAC
based on end-user retail revenues for the previous year generated by assets
being sold.
10.7 Customer Deposits and Construction Advances. Within thirty
-------------------------------------------
(30) days after Closing, Sellers agree to transfer to Buyer the customer
deposits together with any interest accrued thereon (collectively "Customer
Deposits") and Construction Advances, together with all of Sellers' obligations
(exclusive of pre-Closing disputes with respect thereto) and rights to hold the
Customer Deposits and Construction Advances of the Business, up to the Closing
Date, and Buyer agrees to hold, disburse and retain such deposits so delivered
to it, and to perform related construction, as the case may be, as if it were
Sellers.
10.8 Access to Books and Records.
---------------------------
(a) After the Closing, Sellers will retain all Retained
Books and Records for a period of three (3) years from the date hereof, except
for Tax Returns and supporting documentation, which Sellers shall retain until
the later to occur of (i) sixty (60) days subsequent to the expiration of the
applicable statute of limitations or any extensions thereof, or (ii) the
expiration of three (3) years from the date hereof.
(b) After the Closing, upon reasonable notice and subject to
the Confidentiality Agreement, the parties will give to the representatives,
employees, counsel and accountants of the other, access, during normal business
hours, to books and records relating to the Business and the Purchased Property,
and will permit such persons to examine and copy such records, in each case to
the extent reasonably requested by the other party in connection with Tax and
financial reporting matters (including any Tax Returns and related information,
but not attorney work product), audits, legal proceedings, governmental
investigations and other business purposes (including such financial information
and any receipts evidencing payment of Taxes as may be requested by Sellers to
substantiate any claim for Tax credits or refunds); provided, however, that
nothing herein will obligate any party to take actions that would unreasonably
disrupt the normal course of its business or violate the terms of any Contract
to which it is a party or to which it or any of its assets is subject. Sellers
and Buyer will cooperate with each other in the conduct of any Tax audit or
similar proceedings involving or otherwise relating to the Business (or the
income therefrom or assets thereof) with respect to any Tax and each will
execute and deliver such powers of attorney and other documents as are necessary
to carry out the intent of this Section 10.8(b).
10.9 Purchase Price Allocation. No later than ninety (90) days subsequent
-------------------------
to the Closing Date, Buyer and Sellers shall use their good faith efforts to
agree to the allocation (the "Allocation") of the Purchase Price, the Assumed
Liabilities and other relevant items (including, for example, adjustments to the
Purchase Price) to the individual assets or classes of assets within the meaning
of Section 1060 of the IRC. If Buyer and Sellers agree to such Allocation prior
to Closing, Buyer and Sellers covenant and agree that (i) the values assigned to
the assets by the parties' mutual agreement shall be conclusive and final for
all purposes, and (ii) neither Buyer nor Sellers will take any position before
any Governmental Authority or in any judicial proceeding that is in any way
inconsistent with such Allocation. Notwithstanding the foregoing, if Buyer and
Sellers cannot agree to an Allocation, Buyer and Sellers covenant and agree to
file and to cause their respective Affiliates to file, all Tax Returns and
schedules thereto (including, for example, amended returns, claims for refund,
and those returns and forms required under Section 1060 of the IRC and any
Treasury regulations promulgated thereunder) consistent with each of Buyer and
Sellers' good faith Allocations, unless otherwise required because of a change
in applicable Law.
10.10 Owned Real Property Transfers. Within sixty (60) days of the date of
-----------------------------
this Agreement, Sellers shall deliver to Buyer copies of all existing title
insurance policies in Sellers' possession covering the Owned Real Property.
Thereafter, no later than thirty (30) days before the Closing Date, Sellers
shall deliver (at Sellers' expense) to Buyer title commitments for owners'
policies of title insurance prepared by a title insurance company reasonably
acceptable to Buyer and a certified current survey, with respect to all Owned
Real Property included in the Purchased Property and in which Sellers purports
to own fee title. Buyer acknowledges that such title commitments shall be for
California Land Title Association ("CLTA") owners' policies of title insurance
(or its equivalent) unless Buyer has requested in writing, prior to the date
hereof, that such commitments be issued for other forms of title insurance (in
which event, Buyer shall bear all costs and premiums for such title insurance to
the extent attributable to such coverage being in excess of CLTA coverage or its
equivalent). Such title commitments shall reflect that upon the consummation of
the sale to Buyer contemplated by this Agreement and the payment of all premiums
and charges due for such title insurance, Buyer will be vested with good, fee
simple title to such Owned Real Property, subject only to the exceptions show
thereon, the title company's standard exceptions and exclusions, and such
matters that arise after the date and time of such title commitment. Except as
provided in the following sentence, in the event that Buyer requires
endorsements to such title commitments or the applicable title insurance
policies, such endorsements shall be obtained at Buyer's sole cost and expense
and shall not be a condition to Closing. On the Closing Date, Sellers shall
convey the Owned Real Property to be transferred to Buyer subject only to
Permitted Encumbrances, provided that Sellers may transfer such property subject
to one or more exceptions that are not Permitted Encumbrances if Sellers commit
in writing, in form and substance reasonably acceptable to Buyer, on or before
the Closing Date, to cause any such exception that is not a Permitted
Encumbrance to be removed, insured or bonded over to Buyer's reasonable
satisfaction, or if Sellers indemnify Buyer with respect to such exceptions to
Buyer's reasonable satisfaction on or before the Closing Date. With respect to
each parcel of Owned Real Property covered by a title commitment referenced
above, the amount of title insurance provided under the applicable title
insurance policy shall be the fair market value of the applicable property,
which shall be determined by Buyer at its sole cost and expense using
commercially reasonable methods of valuation, provided that all such valuations
shall be consistent with all allocations of the Purchase Price made hereunder or
pursuant to this Agreement, and shall be acceptable to the title insurance
company. The determination of fair market value shall be made in a timely manner
such that the title commitments can be issued in a timely manner prior to the
Closing Date. Sellers agree that prior to Closing it will provide the title
company with such instructions, authorizations, affidavits, and indemnities as
may be reasonably necessary for the title company to issue title policies to
Buyer, dated as of the Closing Date, for all of the Owned Real Property with
so-called non-imputation endorsements. By no later than forty-five (45) days
after the Closing Date, Sellers shall deliver to Buyer a final title insurance
policy covering each parcel of the Owned Real Property covered by the title
commitments. Buyer will use its commercially reasonable efforts to work with the
title company between the date hereof and forty-five (45) days after Closing
Date to resolve any issues with respect to such title commitments. Sellers shall
be responsible for the payment of all title insurance premiums attributable to
the CLTA portion of the coverage afforded by each such policy obtained, and
Buyer shall be responsible for the payment of all title insurance premiums in
excess of such amount and for the payment of all endorsement charges and other
fees and costs imposed by the title company.
10.11 Transaction Taxes. Buyer shall bear and be responsible for paying
-----------------
any sales, use, transfer, documentary, registration, business and occupation and
other similar Taxes (including related penalties (civil or criminal), additions
to Tax and interest) imposed by any Governmental Authorities with respect to the
transfer of Purchased Property to Buyer (including the Owned Real Property)
("Transaction Taxes"), regardless of whether the Tax authority seeks to collect
the such Taxes from Sellers or Buyer. Buyer shall also be responsible for (i)
administering the payment of such Transaction Taxes, (ii) defending or pursuing
any proceedings related thereto, and (iii) paying any expenses related thereto.
Sellers shall give prompt written notice to Buyer of any proposed adjustment or
assessment of any Transaction Taxes with respect to the transaction, or of any
examination of said transaction in a sales, use, transfer or similar Tax audit.
In any proceedings, whether formal or informal, Sellers shall permit Buyer to
participate and control the defense of such proceeding, and shall take all
actions and execute all documents required to allow such participation. Sellers
shall not negotiate a settlement or compromise of any Transaction Taxes without
the written consent of Buyer, which consent shall not be unreasonably withheld.
10.12 Bulk Sales Laws. Sellers and Buyer waive compliance with applicable
---------------
Laws under any version of Article 6 of the Uniform Commercial Code adopted by
any state or any similar Law relating to the sale of inventory, equipment or
other assets in bulk in connection with the sale of the Purchased Property.
10.13 Prepaid Non-regulated Maintenance Agreements. Within thirty (30)
--------------------------------------------
days following Closing, Sellers shall pay to Buyer an amount equal to the pro
rata portion of all prepaid but unearned revenues from Sellers' customers for
all non-regulated maintenance agreements as of the Closing Date.
10.14 Vehicle Registration. Buyer agrees to use its commercially
---------------------
reasonable efforts to file promptly the appropriate vehicle title applications
and registrations to change the name of the titled owner on each vehicle title
certificate and change the motor vehicle registration (with respect to license
plate information) on each vehicle being transferred to Buyer from Sellers
pursuant to this Agreement. Buyer agrees that it shall remove and destroy
Sellers' existing license plates from all vehicles received promptly upon the
receipt of new license plates.
10.15 Carrier Access Billing and Accounts Receivable Transition. Sellers
---------------------------------------------------------
shall render their own final carrier access bills to its interexchange carriers
for minutes, messages and other applicable charges up to the Closing Date.
Sellers shall be responsible for collecting and settling any disputes associated
with their final bills to the interexchange carriers.
10.16 End-User Billing and Accounts Receivable Transition. Buyer agrees to
---------------------------------------------------
purchase Sellers' Earned End-user Accounts Receivable and make payment to
Sellers for those accounts in the manner described below.
(a) Sellers shall transfer to Buyer, as soon as reasonably
available after Closing, all open end-user customer account records as of the
end of business on the Closing Date. Following the Closing, Buyer will be
responsible for administering those records including the application of cash
receipts to customer accounts, whether related to services rendered before or
after the Closing. Sellers will promptly forward to Buyer all customer payments
and related remittance documents received by Sellers after the Closing for
processing by Buyer.
(b) Within twenty (20) days following the Closing, Sellers
will provide an accounting to Buyer of the Earned End-User Accounts Receivable
and the Customer Advances, as well as the most recent twelve (12) month history
of Sellers' uncollectible net writeoffs expressed as a percentage of billings
for the Business (the "Uncollectible Factor"). This data and the resulting
calculation of the Earned End-User Accounts Receivable Amount will be summarized
in an accounts receivable settlement statement (the "Accounts Receivable
Settlement Statement"). Within thirty (30) days following the Closing, Buyer
will remit to Sellers an amount equal to 80% of the Earned End-User Accounts
Receivable Amount less 100% of the Customer Advances. Within sixty (60) days
following the Closing, Buyer will remit an additional 15% of the Earned End-User
Accounts Receivable Amount and within ninety (90) days will remit the final 5%.
(c) Not later than ten (10) days prior to the due dates for
the sixty (60) and ninety (90) day payments referred to in Section 10.16(b)
above, Sellers will provide Buyer with an updated Accounts Receivable Settlement
Statement reflecting any adjustments based upon non-sufficient funds checks,
billing adjustments or other facts that have become known after the original
statement that relate to pre-closing activity.
(d) If at any time during the ninety (90) day period
following the Closing, Buyer or Sellers discovers any material discrepancy in
the Accounts Receivable Settlement Statement, Sellers and Buyer agree to use
commercially reasonable efforts to resolve any discrepancy in a timely manner,
and also agree to make payments related to any undisputed amounts as set forth
above.
10.17 Cooperation. Subsequent to the Closing Date, Buyer and Sellers agree
------------
that they shall cooperate, each with the other, in order to facilitate the
orderly transfer of the operation of the Business from Sellers to Buyer;
provided that except as may be otherwise required under that Agreement, no party
shall be required to pay any out-of-pocket costs associated with their
respective obligations hereunder.
ARTICLE 11
EMPLOYEES AND EMPLOYEE MATTERS
11.1 Employment of Transferred Employees. All Active Employees of Sellers
-----------------------------------
employed in the Business, and all Active Employees of Sellers and their
Affiliates who are associated with the Business, on the Closing Date
(hereinafter collectively referred to as "Transferred Employees") shall be
employed by (or become the responsibility of, as applicable) Buyer as of the
Closing Date in the same or comparable positions, and at the same or comparable
total compensation (including base pay and bonus (exclusive of any retention
bonus)), as were in effect on the Closing Date, except as otherwise provided in
this Agreement. The term "Transferred Employees" shall include only those
individuals described in the preceding sentence who are identified as such on
Schedule 11.1. For purposes of the first sentence, the term "Active Employees"
shall include all full-time and part-time employees, employees on workers'
compensation, military leave, maternity leave, leave under the Family and
Medical Leave Act of 1993, short-term disability, non-occupational disability,
on layoff with recall rights, and employees on other approved leaves of absence
with a legal or contractual right to reinstatement. Buyer also shall employ any
employee of Sellers or their Affiliates who on the Closing Date is an LTD
Recipient (as defined in Section 11.7) and who immediately before his active
employment with Sellers or their Affiliates ceased was employed in or in
association with the Business and whose primary work location is within the
areas serviced by the Purchased Exchanges, provided such employee returns to
active employment within one (1) year of the Closing Date. For a period of six
(6) months following the Closing Date, Buyer shall not employ, and Buyer shall
not permit any of its Affiliates to employ, any person who retires or otherwise
terminates from any employment at or in association with the Business during the
six-month period beginning three (3) months before the Closing Date. All
Transferred Employees and LTD Recipients (as defined in Section 11.7) shall be
identified on Schedule 11.1 to be prepared by Seller and submitted to Buyer at
least fifteen (15) days prior to the Closing Date; such Schedule 11.1 shall
identify, as of the date of such Schedule, the employees who have terminated
employment as described in the preceding sentence; and such Schedule 11.1 shall
be updated as of the date that is three months after the Closing to identify any
employees who terminated employment as described in the preceding sentence after
the date of the original Schedule 11.1.
11.1.1 Assumption of Collective Bargaining Agreement Obligations.
On and after the Closing Date, Buyer, as successor employer to Sellers (subject
to Sellers' Retained Liabilities in Section 2.4.2(d)), shall assume all of the
employer's obligations under, and be bound by the provisions of, each collective
bargaining agreement covering Transferred Employees. Each such collective
bargaining agreement relating to Transferred Employees shall be identified on a
Schedule 11.1.1 to be prepared by Sellers and submitted to Buyer at least
fifteen (15) days prior to the Closing Date. Sellers shall cooperate with Buyer
in Buyer's efforts to contact the unions representing Transferred Employees. If
a union representing Transferred Employees objects to Buyer's assumption of, or
refuses to allow Buyer to assume, the provisions of any existing collective
bargaining agreement that covers such Transferred Employees immediately before
the Closing Date, or objects to any change in or termination of employee
benefits on or after the Closing Date, Sellers and their Affiliates shall have
no liability or obligation to Buyer by reason of such objection or refusal. If,
on or before the Closing Date, an employee objects, or refuses to assent, to the
consummation of the transactions contemplated by this Agreement insofar as the
Agreement affects the employee, Sellers and their Affiliates shall have no
liability or obligation to the employee or any other party by reason of the
employee's objection or refusal to assent, and Buyer shall be responsible for
any liability or obligation that arises by reason of the employee's objection or
refusal to assent (other than any liability or obligation that results from
Sellers' failure to comply with this Agreement and that does not result from
Buyer's failure to comply with this Agreement).
11.1.2 Assumption of Employment and Other Agreements. On and after
the Closing Date, except as otherwise provided in this Agreement or in Schedule
11.1.2, Buyer, as successor employer to Sellers (subject to Sellers' Retained
Liabilities in Section 2.4.2(d)), shall assume all obligations under and be
bound by the provisions of each offer of employment by Sellers relating to the
Business, each employment agreement or any other agreement by Sellers relating
to conditions of employment, employment separation, severance, or employee
benefits in connection with the Business. All obligations described in this
Section 11.1.2 assumed by and binding Buyer shall be identified on a Schedule
11.1.2 to be prepared by Sellers and submitted to Buyer at least fifteen (15)
days prior to the Closing Date.
11.1.3 Recognition of Transferred Employee Service. On and after the
Closing Date, and subject to the provisions of any applicable collective
bargaining agreement, Buyer shall recognize the service of each Transferred
Employee for all employment-related purposes (other than an employee achievement
award, within the meaning of Section 274(j) of the IRC) determined in accordance
with the practices and procedures of Sellers in effect on the Closing Date, as
if such service had been rendered to Buyer. Schedule 11.1 to be prepared by
Sellers and submitted to Buyer no later than fifteen (15) days prior to the
Closing Date shall list the service of each Transferred Employee for the
employment-related purposes referred to in the preceding sentence.
11.1.4 Assumption of Obligation to Pay Bonuses. Except as otherwise
expressly provided in this Agreement, Transferred Employees shall not accrue
benefits under any employee benefit policies, plans, arrangements, programs,
practices, or agreements of Sellers or any of their Affiliates after the Closing
Date. For the year in which the Closing Date occurs, the Transferred Employees
shall be paid any bonuses that would have been payable to the Transferred
Employees for that year had the Transferred Employees remained employees of
Sellers or one of their Affiliates, in accordance with the provisions of the
policy, plan, arrangement, program, practice or agreement under which the bonus
would have been paid (the "Sellers' Bonus Plans"). Sellers shall pay to
Transferred Employees that portion of any such bonus that is attributable to
service during such year on or before the Closing Date, and Buyer shall pay to
Transferred Employees that portion of any such bonus that is attributable to
service during such year after the Closing Date. In determining the amount of
the bonus to be paid by Buyer in accordance with the preceding sentence, Buyer
shall apply criteria that are substantially comparable to the criteria
established as of the Closing Date under the Sellers Bonus Plans under which the
bonus would have been paid had the Transferred Employees remained employees of
Sellers or one of their Affiliates. Sellers shall identify the Sellers Bonus
Plans on a Schedule 11.1.4 to be delivered to Buyer no later than fifteen (15)
days prior to the Closing Date.
11.1.5 No Duplicate Benefits; Dependents and Beneficiaries. Nothing
in this Agreement shall cause duplicate benefits to be paid or provided to or
with respect to a Transferred Employee under any employee benefit policies,
plans, arrangements, programs, practices, or agreements. References herein to a
benefit with respect to a Transferred Employee shall include, where applicable,
benefits with respect to any eligible dependents and beneficiaries of such
Transferred Employee under the same employee benefit policy, plan, arrangement,
program, practice or agreement.
11.1.6 Affiliate Employees. If any employee identified in Schedule
11.1 is an employee of an Affiliate of Sellers, he or she shall be considered a
Transferred Employee and shall be treated under this Agreement in a manner that
is comparable to the treatment given to the Transferred Employees who are
employed by Sellers, except that his or her service as of the Closing Date shall
be determined in accordance with the practices and procedures of his or her
employer, as in effect on the Closing Date.
11.1.7 Term of Assumed Obligations. Except as otherwise expressly
provided in this Agreement, Buyer's obligations with respect to Transferred
Employees under this Article 11 shall continue for a period of not less than one
year after the Closing Date.
11.2 Transferred Employee Benefit Matters.
------------------------------------
11.2.1 Defined Benefit Plans.
(a) Sellers' Pension Plans. As of the date of this
Agreement, Seller participates in the following single-employer defined benefit
pension plans maintained in the United States:
(i) the GTE Service Corporation Plan for Employees'
Pensions (the "Sellers' Salaried Pension Plan"); and
(ii) the GTE Midwest Incorporated Plan for Hourly-Paid
Employees' Pensions and the GTE Southwest Incorporated Plan for Hourly-Paid
Employees' Pensions (collectively, the "Sellers' Hourly Pension Plan").
The plans identified in this Section 11.2.1(a) shall be referred to
collectively in this Agreement as the "Sellers' Pension Plans," and each such
plan shall be referred to individually as a "Sellers' Pension Plan."
(b) Buyer Obligations. Buyer shall take all actions
necessary and appropriate to ensure that, as soon as practicable after the
Closing Date, Buyer maintains or adopts one or more pension plans (hereinafter
referred to in the aggregate as the "Buyer Pension Plans" and individually as
the "Buyer Pension Plan") effective as of the Closing Date and to ensure that
each Buyer Pension Plan satisfies the following requirements as of the Closing
Date: (i) the Buyer Pension Plan is a qualified, single-employer defined benefit
plan under Section 401(a) of the IRC; (ii) any Buyer Pension Plan that was in
effect before the Closing Date shall not have any "accumulated funding
deficiency," as defined in Section 302 of ERISA and Section 412 of the IRC,
whether or not waived, immediately before the Closing Date; (iii) the Buyer
Pension Plan is not the subject of termination proceedings or a notice of
termination under Title IV of ERISA; (iv) the Buyer Pension Plan does not
exclude Transferred Employees from eligibility to participate therein; (v) the
Buyer Pension Plan does not violate the requirements of any applicable
collective bargaining agreement; and (vi) with respect to Transferred Employees
who were participants in the Sellers' Hourly Pension Plan on the Closing Date,
the terms of the Buyer Pension Plan are substantially identical in all material
respects to the terms of the Sellers' Hourly Pension Plan. Within the 30-day
period immediately preceding any transfer of assets and liabilities from a
Sellers' Pension Plan to a Buyer Pension Plan pursuant to this Section
11.2.1(b), Buyer shall provide Sellers with a written certification, in a form
acceptable to Sellers, that the Buyer Pension Plan satisfies each of the
requirements set forth in this Section 11.2.1(b).
(c) Transfer of Liabilities.
(i) In accordance with the provisions of this Section
11.2.1, Buyer shall cause the Buyer Pension Plans to accept all liabilities for
benefits under the Sellers Pension Plans, whether or not vested, that would have
been paid or payable (but for the transfer of assets and liabilities pursuant to
this Section 11.2.1) to or with respect to the Transferred Employees under the
terms of the Sellers' Pension Plans, including, but not limited to, all
liabilities for "Section 411(d)(6) protected benefits" (as defined by Section
411(d)(6) of the IRC and the regulations thereunder) that have accrued under the
Sellers' Pension Plans to or with respect to the Transferred Employees based on
accredited service and compensation under the Sellers' Pension Plans as of the
Closing Date. Buyer shall not amend the Buyer Pension Plans, or permit the Buyer
Pension Plans to be amended, to eliminate any benefit, whether or not vested,
that is a "Section 411(d)(6) protected benefit" (as defined by Section 411(d)(6)
of the IRC and the regulations thereunder). Sellers or an Affiliate thereof may,
in its sole discretion on or prior to the transfer of liabilities, take action
to fully vest Transferred Employees in their benefits (if any) under the
Sellers' Pension Plans.
(ii) (A) For purposes of eligibility and vesting under
the Buyer Pension Plans, each Transferred Employee whose accrued benefit is
transferred from a Sellers' Pension Plan to a Buyer Pension Plan shall be
credited with service and compensation as of the Closing Date as determined
under the terms of the Sellers' Pension Plan. The benefit under the Buyer
Pension Plan for each Transferred Employee who, on the Closing Date,
participates in the Sellers' Hourly Pension Plan, shall be calculated under
terms of the Buyer Pension Plan that are substantially identical in all material
respects to the terms of the Sellers' Hourly Pension Plan. The benefit for each
Transferred Employee who, on the Closing Date, participates in the Sellers'
Salaried Pension Plan, shall not be less than the greater of (x) the sum of the
Transferred Employee's "Sellers' Pension" and "Buyer Pension," or (y) the
Transferred Employee's "Total Service Pension," each as determined under the
rules set forth in subsection (c)(iii)(B) of this Section 11.2.1.
(B) Each Transferred Employee who, as of the
Closing Date, participates or formerly participated in the Sellers' Salaried
Pension Plan and who, under the terms of the Sellers' Salaried Pension Plan, has
at least 15 years of accredited service and combined years of age and accredited
service of at least 74 as of June 1, 1999, shall be eligible, after the
Transferred Employee's employment with the Buyer and its Affiliates is
terminated and after the Transferred Employee's combined years of age and years
of accredited service equal or exceed 76, to receive his or her "Sellers'
Pension" (as determined under the rules set forth in subsection (c)(iii) of this
Section 11.2.1) as an immediate early retirement pension under the applicable
Buyer Pension Plan in accordance with early retirement provisions that are no
less favorable to the Transferred Employee than the early retirement provisions
of the Sellers' Salaried Pension Plan as of the Closing Date. For a period of at
least five (5) years following June 1, 1999, Buyer shall cause the Buyer Pension
Plan to retain early retirement provisions that are no less favorable to the
Transferred Employees than the early retirement provisions of the Sellers'
Salaried Pension Plan to which they were subject as of the Closing Date;
provided, however, that a Transferred Employee shall be entitled to consent to
the provision to such Transferred Employee of a different and less favorable
early retirement benefit.
(C) Notwithstanding the foregoing provisions
of this subsection (c) (ii), if a lump-sum distribution is available under the
Buyer Pension Plan, the benefit under the Buyer Pension Plan of a GATT
Grandfathered Participant, when expressed in the form of a lump sum, shall not
be less than the benefit under the Buyer Pension Plan determined without regard
to the changes to Section 417 of the IRC made by the Uruguay Round Agreements
Act. The method used to convert a GATT Grandfathered Participant's accrued
benefit into a lump-sum amount under the Buyer Pension Plan after 1999 shall be
not less favorable to a GATT Grandfathered Participant than the method used for
similar purposes by the Seller Pension Plan. For purposes of this paragraph
(c)(ii)(C), "GATT Grandfathered Participant" shall mean a Transferred Employee
(x) with respect to whom liabilities are transferred pursuant to this subsection
(c) and (y) who, taking service from Buyer into account as service with Seller,
would have been eligible under the Sellers' Pension Plan, but for the transfer
of liabilities pursuant to this subsection (c), to have his benefit under the
Sellers' Pension Plan (when expressed in the form of a lump sum) determined
without regard to the changes to Section 417 of the IRC made by the Uruguay
Round Agreements Act.
(D) For a period of five (5) years following June
1, 1999, Buyer shall cause the Buyer Pension Plan to retain early
retirement provisions that are no less favorable to the Transferred Employees
than the early retirement provisions of the Sellers' Hourly Pension Plan to
which they were subject as of the Closing Date; provided, however, that a
Transferred Employee shall be entitled to consent to the provision to such
Transferred Employee of a different and less favorable early retirement benefit.
(iii)(A) The Buyer Pension Plan benefit of a
Transferred Employee who, on the Closing Date, participates in the Sellers'
Hourly Pension Plan, shall be calculated as set forth in paragraph (c)(ii)(a) of
this Section 11.2.1.
(B) The Buyer Pension Plan benefit of a Trans-
ferred Employee who, on the Closing Date, participates in the Sellers' Salaried
Pension Plan, shall be calculated by applying the benefit formula set forth in
paragraph (c)(ii)(A) of this Section 11.2.1, in accordance with the rules
described in the remainder of this paragraph (B). A Transferred Employee's
"Sellers' Pension" shall be calculated by applying the benefit formula under the
Sellers' Salaried Pension Plan (as in effect on the Closing Date) to the
Transferred Employee's service and compensation credited under the Sellers'
Salaried Pension Plan as of the Closing Date. A Transferred Employee's "Buyer
Pension" shall be not less than an amount calculated by applying the benefit
formula under the Buyer Pension Plan to the Transferred Employee's total
accredited service and compensation under the Buyer Pension Plan (including
service and compensation credited under the Sellers' Salaried Pension Plan as of
the Closing Date as if such service and compensation had been earned under the
Buyer Pension Plan and service and compensation credited under the Buyer Pension
Plan after the Closing Date), multiplied by the ratio of accredited service
earned after the Closing Date to such total accredited service; provided that
for a period of at least five (5) years following June 1, 1999, Buyer shall
cause the benefit formula used in determining such "Buyer Pension" to provide
benefits at least as valuable as were provided under the benefit formula
applicable to the Transferred Employee under the Sellers' Salaried Pension Plan
on the Closing Date. A Transferred Employee's "Total Service Pension" shall be
calculated by applying the benefit formula under the Buyer Pension Plan to the
Transferred Employee's accredited service (including service and compensation
credited with the Sellers under the Sellers' Salaried Pension Plan as of the
Closing Date as if such service and compensation was earned under the Buyer
Pension Plan and service and compensation credited under the Buyer Pension Plan
on and after the Closing Date). Solely for purposes of computing a Transferred
Employee's "Total Service Pension," compensation received by such a Transferred
Employee from the Sellers shall be treated as compensation received from the
Buyer. The Sellers' Pension, the Buyer Pension, and the Total Service Pension
shall take into account the Transferred Employee's actual age and entire period
of service (including service credited under the Sellers' Salaried Pension Plan
as of the Closing Date and service credited under the Buyer Pension Plan on and
after the Closing Date) for vesting and benefit eligibility purposes.
(C) Each Transferred Employee who is eligible
to receive a benefit under the Buyer Pension Plan may elect to receive the
portion of said benefit that is equal to the Sellers' Pension in any form, and
with any early retirement or other actuarial subsidy, that was available under
the Sellers' Pension Plan on the Closing Date, without regard to whether the
Transferred Employee is eligible to elect or receive, or does elect or receive,
the same form of payment or early retirement or actuarial subsidy for the
remainder of the pension under the Buyer Pension Plan.
(iv) As soon as practicable after the Closing Date,
Seller shall deliver to Buyer a list reflecting each Transferred Employee's
service and compensation under each of the Sellers' Pension Plans and each
Transferred Employee's accrued benefit thereunder as of the Closing Date.
(d) Transfer of Assets.
(i) In accordance with the provisions of subsection
(d)(i) of this Section 11.2.1 and subject to the provisions of subsection
(d)(vi) of this Section 11.2.1, Sellers shall direct the trustee of the Sellers'
Pension Plans to transfer to the trustee or funding agent of the applicable
Buyer Pension Plan an amount in cash determined as provided in the following
sentence (the "Pension Assets") with respect to the Transferred Employees whose
accrued benefits are transferred to a Buyer Pension Plan pursuant to Section (c)
of this Section 11.2.1. The value of the Pension Assets to be transferred by the
Sellers' Pension Plans shall be equal in value to the projected benefit
obligation, as defined in paragraph 17 of Statement of Financial Accounting
Standards No. 87 ("FAS 87"), under the Sellers' Pension Plans for the
Transferred Employees whose accrued benefits are transferred to a Buyer Pension
Plan pursuant to Section (c) of this Section 11.2.1, determined in each case on
an on-going plan basis as of the Closing Date, and on the basis of the
assumptions used for the fiscal year which includes the Closing Date in Sellers'
determination of pension expense for the Sellers' Pension Plans in accordance
with FAS 87; provided, however, that in no event shall the value of the Pension
Assets be less than the amount required to be transferred by Section 414(l) of
the Code and the regulations thereunder determined using the assumptions used by
the PBGC with respect to a plan termination occurring on the Closing Date. The
Pension Assets shall be in the form of cash or marketable obligations. Under no
circumstances shall Sellers or the Sellers' Pension Plans be liable to transfer
any additional amount to Buyer or a Buyer Pension Plan or any other person in
respect of the accrued benefits transferred to a Buyer Pension Plan pursuant to
Section (c) of this Section 11.2.1, including but not limited to any
circumstance under which any person (including a governmental agency) states a
claim to some portion or all of the Pension Assets.
(ii) Sellers shall appoint an actuary ("Sellers'
Actuary") to determine the amount to be transferred pursuant to subsection
(d)(i) of this Section 11.2.1 and shall provide such determination to Buyer.
Buyer shall appoint an actuary ("Buyer's Actuary") who shall have the right to
audit and review the determination made by Sellers' Actuary. Within thirty (30)
days of the date Sellers inform Buyer of the amount of the Pension Assets,
Sellers' Actuary shall provide Buyer's Actuary with a computer file containing
all the employee data used by Sellers' Actuary to calculate the Pension Assets.
If Buyer's Actuary is unable to agree with Sellers' Actuary on the amount of the
transfer within sixty (60) days after Sellers inform Buyer of the amount to be
transferred, Sellers and Buyer shall jointly select a third actuary, whose
determination shall be binding on Sellers and Buyer. Each of Sellers and Buyer
shall bear the fees, costs and expenses of their respective actuaries, and the
fees, costs, and expenses of the third actuary shall be borne one-half by
Sellers and one-half by Buyer.
(iii) The Pension Assets shall be credited with interest
from the Closing Date to the actual date of transfer at the assumed discount
rate used in accordance with paragraph (i) of this Section (d); provided that
any Pension Assets that are distributed from the Sellers' Pension Plans before
the date of transfer pursuant to subsection (d)(vi) of this Section 11.2.1 shall
be credited with interest (such interest to be credited to the Buyer Pension
Plans) only from the Closing Date to the date of distribution.
(iv) Under the terms of each Buyer Pension Plan, the
accrued benefit of each Transferred Employee immediately after the transfer of
assets and liabilities pursuant to this Section 11.2.1 shall not be less than
the sum of each Transferred Employee's accrued benefits under the Sellers'
Pension Plan and the Buyer Pension Plan immediately before the transfer of
assets and liabilities. Neither Sellers nor their Affiliates nor the Sellers'
Pension Plans nor any trustee thereof shall retain any liability for benefits
under the Sellers' Pension Plans for any Transferred Employee with respect to
whom cash or marketable obligations have been transferred to a Buyer Pension
Plan pursuant to this Section 11.2.1 or distributed pursuant to subsection
(d)(vi) of this Section 11.2.1 (other than any additional liability that results
from Sellers' (or their Affiliates') failure to comply with this Agreement, the
Sellers' Pension Plan or applicable Law and that does not result from any
failure of Buyer or its Affiliates to comply with this Agreement, the Buyer
Pension Plan or applicable Law).
(v) In connection with the transfer of assets and
liabilities pursuant to this Section 11.2.1, Sellers and Buyer shall cooperate
with each other in making all appropriate filings required by the IRC or ERISA
and the regulations thereunder, and the transfer of assets and liabilities
pursuant to this Section 11.2.1 shall not take place until as soon as
practicable after the latest of (i) the expiration of the 30-day period
following the filing of any required notices with the IRS pursuant to Section
6058(b) of the IRC, or (ii) the date Buyer has delivered to Seller (xx) a copy
of the Buyer Pension Plan and a copy of the most recent determination letter
from the IRS to the effect that the Buyer Pension Plan is qualified under
Section 401(a) of the IRC, together with documentation reasonably satisfactory
to Seller of the due adoption of any amendments to the Buyer Pension Plan
required by the IRS as a condition to such qualification and a certification
from Buyer that no events have occurred that adversely affect the continued
validity of such determination letter (apart from the enactment of any Federal
law for which the remedial amendment period under Section 401(b) of the IRC has
not yet expired), and (yy) information enabling the enrolled actuary for the
Buyer Pension Plan to issue the certification required by Section 6058(b) of the
IRC.
(vi) (A) If, after the Closing Date and before the date
of transfer of assets and liabilities from the Sellers' Pension Plans pursuant
to this Section 11.2.1, the accrued benefit as of the Closing Date becomes
payable under a Sellers' Pension Plan to or with respect to a Transferred
Employee, Buyer shall (xx) furnish GTE Service Corporation with a copy of a
properly completed application for such benefits, and (yy) direct GTE Service
Corporation to instruct the trustee of the Sellers' Pension Plan to make benefit
payments in the form and amount determined by GTE Service Corporation in
accordance with the properly completed application for benefits. Sellers shall
cause GTE Service Corporation to comply with any such direction.
(B) To the extent that any reasonable custodial,
trustee, asset management, or other plan administration expenses attributable to
the Pension Assets and to the period ending on the date of the transfer of
assets and liabilities from the Sellers' Pension Plans pursuant to this Section
11.2.1 are allocable to the assets and liabilities to be so transferred, Buyer
shall reimburse the trustee of the Sellers' Pension Plans in the amount of such
allocable expense if the expense is to be paid from assets then held by the
trustee of the Sellers' Pension Plans or, if the expense is not to be paid from
assets then held by the trustee of the Sellers' Pension Plans, Buyer shall
reimburse GTE Service Corporation in the amount of the expense, in each case
within fifteen (15) days of the date on which Buyer receives a statement
therefor from GTE Service Corporation.
(C) Notwithstanding anything herein to the
contrary, the assets and liabilities to be transferred from the trustee of the
Sellers' Pension Plans to the trustee or funding agent of the Buyer Pension Plan
pursuant to this Section 11.2.1 shall be reduced, as provided in this subsection
(vi), to reflect any benefit payments made pursuant to this subsection (vi)
regardless of the form in which paid and any expenses described in paragraph (B)
of this subsection (vi) that have not otherwise been paid pursuant to this
subsection (vi).
11.2.2 Savings Plans.
(a) As of the date of this Agreement, Sellers participate
in the GTE Savings Plan and the GTE Hourly Savings Plan (collectively referred
to as the "Sellers' Savings Plans"). Except as provided in Section (g) of this
Section 11.2.2, Transferred Employees shall not be entitled to make
contributions to or to benefit from matching or other contributions under the
Sellers' Savings Plans on and after the Closing Date.
(b) Buyer shall take all action necessary and appropriate
to ensure that, as soon as practicable after the Closing Date, Buyer maintains
or adopts one or more savings plans (hereinafter referred to in the aggregate as
the "Buyer Savings Plans" and individually as the "Buyer Savings Plan")
effective as of the Closing Date and to ensure that the Buyer Savings Plans
satisfy the following requirements as of the Closing Date: (i) each Buyer
Savings Plan is a qualified, single-employer individual account plan under
Section 401(a) of the IRC; (ii) at least one (1) Buyer Savings Plan does not
exclude Transferred Employees from eligibility to participate therein; (iii) at
least one (1) Buyer Savings Plan permits Transferred Employees to make
before-tax contributions (under Section 401(k) of the IRC) and provides for
matching contributions by the Buyer at a rate of match determined solely in the
discretion of Buyer; and (iv) the Buyer Savings Plan does not violate the
requirements of any applicable collective bargaining agreement to which it is
subject. Within the thirty (30) day period immediately preceding any transfer of
assets and liabilities from a Sellers' Savings Plan to a Buyer Savings Plan
pursuant to this Section 11.2.2, Buyer shall provide Sellers with a written
certification, in a form acceptable to Sellers, that the Buyer Savings Plan
satisfies each of the requirements set forth in this Section (b).
(c) (i) Sellers shall direct the trustee of the Sellers'
Savings Plans to transfer to the trustee or funding agent of the Buyer Savings
Plan designated by Buyer an amount in cash equal in value to the account
balances of the Transferred Employees covered by the Sellers' Savings Plans as
of the date of the transfer; provided that to the extent the account balances to
be transferred consist in whole or in part of outstanding participant loans
which comply with the provisions of the IRC and ERISA (the "Participant Loans"),
Sellers shall direct the trustee of the Sellers' Savings Plans to transfer to
the trustee or funding agent of the Buyer Savings Plans, in lieu of cash, the
promissory notes and related documents evidencing such Participant Loans. Buyer
and Sellers shall take such actions as may be required to effect the assignment
of such loans by the trustee of the Sellers' Savings Plan to the trustee or
funding agent of the Buyer Savings Plan, and Buyer shall cause the trustee or
funding agent of the Buyer Savings Plan to accept the assignment of such
Participant Loans.
(ii) After the date of the transfer of assets and
liabilities pursuant to this Section 11.2.2, Buyer shall assume all liabilities
for the benefits payable to or with respect to such Transferred Employees under
the Sellers' Savings Plans, and Sellers and the Sellers' Savings Plans and their
implementing trust shall retain no liability for such benefits (other than any
additional liability that results from Sellers' (or their Affiliate's) failure
to comply with this Agreement, the Sellers' Savings Plan or applicable Law and
that does not result from any failure of Buyer or its Affiliates to comply with
this Agreement, the Buyer Savings Plan or applicable Law.
(d) For purposes of eligibility and vesting under the Buyer
Savings Plans, each Transferred Employee shall be credited with service as of
the Closing Date as determined under the terms of the Sellers' Savings Plans. As
soon as practicable after the Closing Date, Sellers shall cause GTE Service
Corporation to deliver to Buyer a list of the Transferred Employees covered by
the Sellers' Savings Plans, together with each Transferred Employee's service
under each of the Sellers' Savings Plans as of the Closing Date.
(e) In connection with the transfer of assets and liabi-
lities pursuant to this Section 11.2.2, Sellers and Buyer shall cooperate with
each other in making all appropriate filings required by the IRC or ERISA and
the regulations thereunder, and the transfer of assets and liabilities pursuant
to this Section 11.2.2 shall not take place until as soon as practicable after
the latest of (i) the expiration of the thirty (30) day period following the
filing of any required notices with the IRS pursuant to Section 6058(b) of the
IRC, and (ii) the date Buyer has delivered to Sellers (xx) a copy of the Buyer
Savings Plan and a copy of the most recent determination letter from the IRS to
the effect that the Buyer Savings Plan is qualified under Sections 401(a) and
401(k) of the IRC, together with documentation reasonably satisfactory to
Sellers of the due adoption of any amendments to the Buyer Savings Plan required
by the IRS as a condition to such qualification and a certification from Buyer
that no events have occurred that adversely affect the continued validity of
such determination letter (apart from the enactment of any Federal law for which
the remedial amendment period under Section 401(b) of the IRC has not yet
expired).
(f) As soon as practicable after the Closing Date, Sellers
shall cause GTE Service Corporation to deliver to Buyer a list of the
Transferred Employees who have outstanding Participant Loans under the Sellers'
Savings Plans, together with copies of said Transferred Employees' notes,
disclosure statements, and security agreements under the Sellers' Savings Plans.
Subject to obtaining the consent of the applicable Transferred Employee if
required by law, from the Closing Date until the earliest of (i) the actual date
of transfer of assets and liabilities pursuant to this Section 11.2.2; (ii) the
full amortization of the Transferred Employee's indebtedness; (iii) the
distribution of the entire balance of the Transferred Employee's accounts; or
(iv) the last date on which Buyer or one of its Affiliates pays remuneration to
the Transferred Employee, Buyer or its Affiliate shall (x) continue the payroll
deductions pursuant to which each such Transferred Employee is discharging
indebtedness to a Sellers' Savings Plan and (y) remit the deducted funds to
Fidelity Management Trust Company, the trustee of the Sellers' Savings Plans, as
soon as practicable, but in no event more than thirty (30) days, after the date
of deduction, together with an accounting that identifies the Transferred
Employees with respect to whom the funds were deducted and the amount deducted
for each Transferred Employee. All such remitted funds shall be transferred to
the appropriate Sellers' Savings Plan and applied to reduce the appropriate
Transferred Employee's outstanding indebtedness. Buyer's obligations under this
Section (f) are limited to payroll deductions of Participant Loans repayments by
the Transferred Employees and remittance of those funds, and nothing herein
shall be construed to obligate Buyer to repay to Sellers any portion of the
outstanding indebtedness of the Transferred Employees that are not otherwise
discharged by the Transferred Employees themselves.
(g) Sellers shall make all required matching contributions
with respect to the Transferred Employees' contributions to the Sellers' Savings
Plans that are (i) eligible for matching and (ii) made before, or relate to a
period ending on or prior to, the Closing Date. Such matching contributions
shall be made not later than the date on which all other matching contributions
are made to the Sellers' Savings Plans with respect to contributions made at the
same time as the Transferred Employees' contributions.
11.2.3 Welfare Plans.
(a) Buyer shall take all action necessary and appropriate
to ensure that, as soon as practicable after the Closing Date, Buyer maintains
or adopts, as of the Closing Date, one or more employee welfare benefit plans,
including medical, health, dental, flexible spending account, accident, life,
short-term disability, and long-term disability and other employee welfare
benefit plans (including retiree medical and life) for the benefit of (i) the
non-bargained Transferred Employees (the "Non-Union Welfare Plans") and (ii) the
union-represented Transferred Employees in accordance with the provisions of
applicable collective bargaining agreements (the "Bargained Welfare Plans"). The
Non-Union Welfare Plans and the Bargained Welfare Plans are hereinafter referred
to collectively as the "Buyer Welfare Plans." The Buyer Welfare Plans shall
provide as of the Closing Date pre-retirement benefits to Transferred Employees
(and their dependents and beneficiaries) that, in the aggregate, are comparable
to the pre-retirement benefits to which they were entitled under the
corresponding employee welfare benefit plans maintained by Sellers on the
Closing Date. For purposes of determining eligibility to participate in each
Buyer Welfare Plan, each Transferred Employee shall be credited with service,
determined under the terms of the corresponding welfare plans maintained by
Sellers on the Closing Date (hereinafter referred to collectively as the
"Sellers' Welfare Plans"). Any restrictions on coverage for pre-existing
conditions or requirements for evidence of insurability under the Buyer Welfare
Plans shall be waived for Transferred Employees, and Transferred Employees shall
receive credit under the Buyer Welfare Plans for co-payments and payments under
a deductible limit made by them and for out-of-pocket maximums applicable to
them during the plan year of the Sellers' Welfare Plan in accordance with the
corresponding Sellers' Welfare Plans. As soon as practicable after the Closing
Date, Sellers shall deliver to Buyer a list of the Transferred Employees who had
credited service under a Sellers' Welfare Plan, together with each such
Transferred Employee's service, co-payment amounts, and deductible and
out-of-pocket limits under such plan.
(b) (i) Except as otherwise provided in subsection (b)(ii)
of this Section (b) or in an applicable collective bargaining agreement, Buyer
shall provide or cause to be provided retiree medical, health, and life benefits
to each Transferred Employee (or the dependents or beneficiaries of such
Transferred Employee, as the case may be) under substantially comparable terms
and conditions as apply to other comparable employees of Buyer, and Sellers
shall have no obligation to provide retiree medical, health and life benefits in
respect of any Transferred Employee on or after the Closing Date.
(ii) Subject to Section 11.4 below, following the
retirement from Buyer and its Affiliates or any successor thereof of a
Transferred Employee who is not subject to a collective bargaining agreement as
of the Closing Date, who has combined age and years of accredited service
(within the meaning of the Sellers' Pension Plan) as of June 1, 1999, equal to
at least 66, and who as of his or her retirement has combined age and years of
accredited service (within the meaning of the Sellers Pension Plan) equal to at
least 76 and at least 15 years of accredited service (within the meaning of the
Sellers' Pension Plan) (a "Retired Non-Union Transferred Employee"), Sellers
shall provide or cause to be provided to each such Retired Nonunion Transferred
Employee (and/or his or her dependents and beneficiaries) retiree medical,
health, and life benefits under terms and conditions that are substantially
identical to the terms and conditions under the corresponding programs offered
by Sellers to their similarly situated noncollectively bargained employees
retiring as of the Closing Date; provided that nothing in this subsection
(b)(ii) shall be construed to prevent any Retired Non-Union Transferred Employee
(or his or her dependents or beneficiaries) from voluntarily relinquishing such
benefits. Buyer shall reimburse Sellers, in accordance with this subsection
(b)(ii), for the cost of the retiree medical, health, and life coverage for
which Sellers are responsible and that Sellers actually provide pursuant to this
subsection (b)(ii). For each year for which Buyer is required to reimburse
Seller under this subsection (b)(ii), Buyer shall pay Sellers annually in
arrears, within 30 days after Sellers provide a statement therefor to Buyer, (A)
$4,500 with respect to each Retired Non-Union Transferred Employee who has not
yet attained age 65 during the year for which the payment is made and $4,500
with respect to each spouse who is covered with respect to a Retired Non-Union
Transferred Employee and who has not yet attained age 65 during the year for
which the payment is made, and (B) $2,000 with respect to each Retired Non-Union
Transferred Employee who has attained at least age 65 during the year for which
the payment is made and $2,000 with respect to each spouse who is covered with
respect to a Retired Non-Union Transferred Employee and who has attained at
least age 65 during the year for which the payment is made. No reimbursement
shall be due with respect to any dependent, other than a spouse, covered with
respect to a Retired Non-Union Transferred Employee. The reimbursement
obligation for partial years shall be prorated based on the portion of the year
covered by the obligation. Each Retired Non-Union Transferred Employee (or his
or her dependent or beneficiary, as the case may be) who is provided benefits by
Sellers under this subsection (b)(ii) shall be required to pay to Sellers any
premium, contribution or other payment required under, and shall be subject to
any copayment or deductible required under, the terms of Sellers' applicable
retiree medical, health, or life benefit plan; to the extent that any amount
constituting such a payment is deducted from any plan, program, or arrangement
maintained by Buyer or one of its Affiliates or is otherwise paid to Buyer or
one of its Affiliates by such person, Buyer shall cause such amount to be paid
to Sellers as soon as administratively practicable.
(iii) Benefits provided pursuant to subsection (b)(ii)
of this Section (b) shall take into account service with and
compensation increases from Buyer on and after the Closing Date in the same
manner as if such post-Closing Date service was performed with, or such
compensation was provided by, Sellers. Buyer shall provide Sellers with such
information as shall be required to implement the immediately preceding
sentence.
(c) Buyer shall refer to GTE Service Corporation and GTE
Service Corporation shall assume responsibility for any valid claim under a
Sellers' Welfare Plan for disability, medical, dental or other benefits made by
a Transferred Employee on or after the Closing Date arising from a loss incurred
on or before the Closing Date. Nothing in this Section 11.2.3 shall require
Sellers, any Affiliate of Sellers, or the Sellers' Welfare Plans to make any
payment or to provide any benefit not otherwise provided by the terms of the
Sellers' Welfare Plans.
(d) Sellers, Buyer, their respective Affiliates, and the
Sellers' Welfare Plans and the Buyer Welfare Plans shall assist and cooperate
with each other in the disposition of claims made under the Sellers' Welfare
Plans pursuant to subsection (c) of this Section 11.2.3, and in providing each
other with any records, documents, or other information within its control or to
which it has access that is reasonably requested by any other as necessary or
appropriate to the disposition, settlement, or defense of such claims.
(e) Except for GTE Flexible Reimbursement Plan (the "FRP")
account balances described in Section 11.2.3(f), nothing in this Agreement shall
require Sellers or their Affiliates to transfer assets or reserves with respect
to the Sellers' Welfare Plans to Buyer or the Buyer Welfare Plans.
(f) As of the Closing Date, Sellers shall cause the portion
of the FRP applicable to Transferred Employees to be segregated into a separate
component and all account balances of the Transferred Employees in the FRP shall
be transferred to a flexible reimbursement plan that Buyer shall cause to be
maintained for the duration of the calendar year in which the Closing Date
occurs.
(g) On and for a period of at least three (3) years after
the Closing Date, Transferred Employees not subject to a collective bargaining
agreement shall be eligible for benefits under a Buyer severance or separation
pay policy or plans that are the same as or comparable to the severance or
separation pay policy benefits that are provided by Sellers (or the applicable
Affiliate, if the Transferred Employee is employed by an employer other than the
Sellers) or a Sellers' Pension Plan as of the Closing Date. Buyer shall
recognize the service of each such Transferred Employee with Sellers and their
Affiliates for eligibility, vesting, and benefit determinations under the Buyer
severance or separation pay policy or plan. Transferred Employees subject to a
collective bargaining agreement shall be eligible for severance or separation
pay benefits in accordance with the terms of the applicable collective
bargaining agreement.
11.3 Miscellaneous Benefits.
----------------------
11.3.1 Loans.
Buyer shall (i) obtain at its own expense newly executed payroll
deduction authorization forms from all Transferred Employees to whom Sellers
have made outstanding education loans, mortgage loans, and relocation loans
(excluding any Participant Loans under the Sellers' Savings Plans), (ii) subject
to obtaining the consent of the applicable Transferred Employee if required by
law, continue the payroll deductions pursuant to which such Transferred
Employees are discharging such indebtedness, and (iii) as soon as practicable,
but in no event more than thirty (30) days, after the date of deduction, remit
such funds (together with an accounting that identifies the Transferred
Employees with respect to whom the funds were deducted and the amount deducted
for each Transferred Employee) to Sellers for application by Sellers to the
Transferred Employees' outstanding indebtedness. Buyer's obligation with respect
to each respective Transferred Employee pursuant to the preceding sentence shall
commence as of the Closing Date and continue until the earlier of the full
amortization of the Transferred Employee's indebtedness or the last date on
which Buyer or one of its Affiliates pays remuneration to the Transferred
Employee. Sellers shall not seek to accelerate, cancel or otherwise change the
terms of any education loans, mortgage loans, or relocation loans made by
Sellers to such Transferred Employees, except in the case of a default by a
Transferred Employee. Buyer's obligations under this Section 11.3.1 are limited
to payroll deductions of loan repayments by the Transferred Employees and
remittance of those funds and the related accounting, and nothing herein shall
be construed to obligate Buyer to repay to Sellers any portion of the
outstanding indebtedness of the Transferred Employees that are not otherwise
discharged by the Transferred Employees themselves; provided that,
notwithstanding anything to the contrary in Article 12 of this Agreement or
Section 11.6 of this Agreement, Sellers shall indemnify and hold harmless Buyer
for all claims, demands, actions, proceedings, causes of action, liability,
loss, cost, damage, and expense (including reasonable attorney's fees) in any
way arising from or incurred as a result of Buyer's administration of the
outstanding indebtedness or the payroll deduction authorization process as
described above. All Transferred Employees with outstanding indebtedness as
described in this Section 11.3.1 and the amount and nature of this indebtedness
shall be identified on a Schedule 11.3.1 to be prepared by Sellers and submitted
to Buyer before the Closing Date.
11.3.2 Vacation.
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(a) On or after the Closing Date, Buyer shall allow Trans-
ferred Employees to receive paid time off in the calendar year of the Closing
for any unused vacation time accrued, with respect to the calendar year of the
Closing, prior to the Closing Date. Except as provided in the following
sentence, Sellers and their Affiliates shall have no liability to Transferred
Employees for the vacation payments described in this Section 11.3.2. Sellers
shall pay Transferred Employees any banked vacation on or before the Closing
Date. Schedule 11.1 to be prepared by Sellers and submitted to Buyer on or
before the Closing Date shall list the accrued but unused vacation pay, as of
the Closing Date, of each Transferred Employee for the calendar year in which
the Closing Date occurs.
(b) For purposes of determining a Transferred Employee's
eligibility for vacation under Buyer's vacation plan, a Transferred Employee
shall be credited, as of the first day of the first calendar year that begins
after the calendar year in which the Closing Date occurs, with service for the
calendar year in which the Closing Date occurs in an amount equal to the
aggregate of the Transferred Employee's service with both Sellers and Buyer
during the calendar year in which the Closing Date occurs.
(c) At the time of Closing, all vacation for Transferred
Employees for the calendar year of Closing shall be prorated and the net
liability related thereto shall be an adjustment to the Purchase Price (the
"Vacation Proration Amount"). The adjustment shall be determined by crediting
the Buyer with an amount equal to the accrued and unused vacation for
Transferred Employees. In determining said net liability, Sellers shall receive
a credit against the total liability for any vacation used in excess of the
accrued vacation for Transferred Employees as of the Closing Date.
11.4 Employee Rights.
---------------
Nothing herein expressed or implied shall confer upon any employee
of Sellers or their Affiliates, or Buyer or its Affiliates, or upon any legal
representative of such employee, or upon any collective bargaining agent, any
rights or remedies, including any right to employment or continued employment
for any specified period, of any nature or kind whatsoever under or by reason of
this Agreement.
Nothing in this Agreement shall be deemed to confer upon any person
(nor any beneficiary thereof) any rights under or with respect to any plan,
program, or arrangement described in or contemplated by this Agreement, and each
person (and any beneficiary thereof) shall be entitled to look only to the
express terms of any such plan, program, or arrangement for his or her rights
thereunder.
Nothing in this Agreement shall cause Buyer or its Affiliates, nor
Sellers or their Affiliates to have any obligation to provide employment or any
employee benefits to any individual who is not a Transferred Employee or, except
as otherwise provided in Section 11.1.2 with respect to employment agreements,
to continue to employ any Transferred Employee for any period of time following
the Closing Date.
11.5 WARN Act Requirements.
---------------------
On and after the Closing Date, Buyer shall be responsible with
respect to Transferred Employees and their beneficiaries for compliance with the
Worker Adjustment and Retraining Notification Act of 1988 and any other
applicable Law, including any requirement to provide for and discharge any and
all notifications, benefits, and liabilities to Transferred Employees and
government agencies that might be imposed as a result of the consummation of the
transactions contemplated by this Agreement or otherwise.
11.6 Indemnification.
---------------
11.6.1 Indemnification of Sellers. Notwithstanding anything to the
contrary in Article 12 of this Agreement, Buyer shall indemnify and hold
harmless Sellers, their Affiliates, and their respective directors, officers,
employees, agents, and assigns, and each employee benefit plan or arrangement
maintained or contributed to by Sellers or an Affiliate thereof (whether or not
such plan or arrangement is an "employee benefit plan" within the meaning of
Section 3(3) of ERISA) and its administrators, fiduciaries, and agents, from and
against any and all claims, demands, actions, administrative or other
proceedings, causes of action, liability, loss, cost, damage, and expense
(including reasonable attorneys' fees) (i) in any way arising out of or incurred
as a result of any action by Buyer, its Affiliates, their respective directors,
officers, employees, or agents, the administrators or fiduciaries of any
employee benefit plan maintained or contributed to by Buyer or an Affiliate
thereof (whether or not such plan or arrangement is an "employee benefit plan"
within the meaning of Section 3(3) of ERISA), or any of their successors, to
change, reduce contributions to, terminate, fail to continue, fail to pay
benefits under, or fail to manage or administer properly any employee benefit
plan or arrangement (whether or not such plan or arrangement is an "employee
benefit plan" within the meaning of Section 3(3) of ERISA) on or after the
Closing Date, or (ii) in any way arising out of or incurred as a result of any
action that is a breach of any the covenants, representations, warranties, or
obligations of any such person under this Agreement.
11.6.2 Indemnification of Buyer. Notwithstanding anything to the
contrary in Article 12 of the Agreement, Sellers shall indemnify and hold
harmless Buyer, its Affiliates, and their respective directors, officers,
employees, agents, and assigns, and each employee benefit plan or arrangement
maintained or contributed to by Buyer or an Affiliate thereof (whether or not
such plan or arrangement is an "employee benefit plan" within the meaning of
Section 3(3) of ERISA) and its administrators, fiduciaries, and agents, from and
against any and all claims, demands, actions, administrative or other
proceedings, causes of action, liability, loss, cost, damage, and expense
(including reasonable attorneys' fees) (i) in any way arising out of or incurred
as a result of any action by Sellers, their Affiliates, their respective
directors, officers, employees, or agents, the administrators or fiduciaries of
any employee benefit plan maintained or contributed to by Sellers or an
Affiliate thereof (whether or not such plan or arrangement is an "employee
benefit plan" within the meaning of Section 3(3) of ERISA), or any of their
successors, to change, reduce contributions to, terminate, fail to continue,
fail to pay benefits under, or fail to manage or administer properly any
employee benefit plan or arrangement (whether or not such plan or arrangement is
an "employee benefit plan" within the meaning of Section 3(3) of ERISA) before,
or relating to a period before, the Closing Date, or (ii) in any way arising out
of or incurred as a result of any action that is a breach of any the covenants,
representations, warranties, or obligations of any such person under this
Agreement.
11.7 Special Provisions For Certain Employees.
----------------------------------------
Any individual employed in or in association with the Business and
whose primary work location is within the areas serviced by the Purchased
Exchanges who as of the Closing Date either (i) is currently receiving long-term
disability benefits under a long-term disability plan of the Sellers or one of
their Affiliates (the "Sellers' LTD Plan"), (ii) has been approved for receipt
of long-term disability benefits under the Sellers' LTD Plan, or (iii) is
receiving a disability pension under a Sellers' Pension Plan (collectively, an
"LTD Recipient") shall be treated as a Transferred Employee if and when the LTD
Recipient recovers from his or her disabling condition and returns to active
service with the Buyer. The term "LTD Recipients" shall include only those
individuals described in the preceding sentence who are identified on Schedule
11.1.
Any Transferred Employee described in the preceding paragraph
(whether or not identified on Schedule 11.1 as an "LTD Recipient") shall
continue to receive benefits under Sellers' LTD Plan (or, if applicable, a
disability pension under a Sellers' Pension Plan) after the Closing Date to the
extent provided under Sellers' LTD Plan (or the applicable Sellers' Pension
Plan). As long as such individual remains eligible to receive benefits under
Sellers' LTD Plan (or the applicable Sellers' Pension Plan), the Buyer shall not
be required to provide coverage or benefits to the individual under the employee
benefit plans or programs maintained by the Buyer.
If any LTD Recipient recovers from his or her disabling condition,
Sellers shall have no obligation to offer or provide any employment to such LTD
Recipient, and absent a legal or contractual right to reemployment and except as
otherwise provided in Section 11.1, Buyer shall have no obligation to offer or
provide any employment to such LTD Recipient. If an LTD Recipient who received
disability benefits under the Sellers' LTD Plan (or the applicable Sellers'
Pension Plan, as the case may be) returns to active service with the Buyer or
one of its Affiliates, the LTD Recipient's period of disability covered under
the Sellers' LTD Plan (or the applicable Sellers' Pension Plan, as the case may
be) shall be treated as a period of service under the employee benefit plans and
programs of the Buyer and its Affiliates to the same extent that the period of
disability is treated as a period of service under the employee benefit plans
and programs of Sellers and their Affiliates.
ARTICLE 12
INDEMNIFICATION
12.1 Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
(a) The representations and warranties contained in Sections
8.1.6 and 8.2.6 will survive the Closing and remain in full force and effect
indefinitely. The representations and warranties contained in Section 8.1.13
will terminate upon the expiration of the applicable statute of limitations.
Each of the other representations and warranties contained in Article 8 will
terminate, without further action, on the date which is (i) the later of one (1)
year following the Closing Date, or (ii) the completion of Buyer's first audit
cycle following the Closing Date, however, that such cycle is completed within
fifteen (15) months following the Closing Date (in each case, the applicable
date of expiration of such representations and warranties is referred to herein
as an "Expiration Date").
(b) This Article 12 shall survive any termination of this
Agreement and the Ancillary Agreements and the indemnification contained in this
Article 12 shall survive the Closing and shall remain in effect (i)
indefinitely, with respect to any Indemnifiable Claim related to the breach of
any representation or warranty which pursuant to Section 12.1(a) survives
indefinitely, (ii) indefinitely, with respect to any Indemnifiable Claim arising
under Section 12.2(a)(iii) (Retained Liabilities) or 12.2(b)(iii) (Assumed
Liabilities) and (iii) until the date Expiration Date for any Indemnifiable
Claims that are not specified in any of the preceding clauses. Unless a claim
for indemnification with respect to any alleged breach of any representation or
warranty is asserted by notice given as herein provided that specifically
identifies a particular breach and the underlying facts relating thereto, which
notice is given within the applicable period of survival for such representation
or warranty, such claim may not be pursued and is irrevocably waived after such
time. Without limiting the generality or effect of the foregoing, no claim for
indemnification with respect to any representation or warranty will be deemed to
have been properly made except (i) to the extent it is based upon a Third Party
Claim made or brought prior to the expiration of the survival period for such
representation or warranty, or (ii) to the extent based on Indemnifiable Losses
actually incurred, or after due inquiry, reasonably expected to be incurred, by
an Indemnitee prior to the expiration of the survival period for such
representation or warranty.
12.2 Indemnification.
(a) Following the Closing and subject to the other sections
of this Article 12, Sellers jointly and severally will indemnify, defend and
hold harmless Buyer and its Affiliates and their respective directors, officers,
and agents from and against all Indemnifiable Losses relating to, resulting from
or arising out of (i) any inaccuracy in any of the representations and
warranties made by Sellers in Section 8.1 of this Agreement, (ii) a breach by
Sellers of any covenant or agreement of Sellers contained in this Agreement, and
(iii) any of the Retained Liabilities.
(b) Following the Closing and subject to the other sections
of this Article 12, Buyer will indemnify, defend and hold harmless Sellers and
their Affiliates and their respective directors, officers, and agents from and
against all Indemnifiable Losses relating to, resulting from or arising out of
(i) any inaccuracy in any of the representations or warranties made by Buyer in
Section 8.2 of this Agreement, (ii) a breach by Buyer of any covenant or
agreement of Buyer contained in this Agreement, and (iii) any of the Assumed
Liabilities.
(c) Payments made under this Section 12.2 shall be treated
by Buyer and Sellers as purchase price adjustments and Buyer and Sellers shall
file all Tax Returns consistent with such treatment. Notwithstanding anything to
the contrary contained herein, Buyer shall not be indemnified or reimbursed for
any Tax consequences arising from the receipt or accrual of an indemnity payment
hereunder including any Tax consequences arising from adjustments to the basis
of any asset resulting from an adjustment to the Purchase Price or any
additional or reduced taxes resulting from any such basis adjustment.
12.3 Limitations on Liability.
------------------------
(a) For purposes of this Agreement,(i) "Indemnification
Payment" means any amount of Indemnifiable Losses required to be paid pursuant
to this Agreement, (ii) "Indemnitee" means any person or entity entitled to
indemnification under this Agreement, (iii) "Indemnifying Party" means any
person or entity required to provide indemnification under this Agreement, and
(iv) "Indemnifiable Losses" means any losses, liabilities, damages, costs and
expenses (including reasonable attorneys' fees and expenses and reasonable costs
of investigation) actually incurred in connection with any actions, suits,
demands, assessments, judgments and settlements, in any such case (x) reduced by
(i) the amount of insurance proceeds recovered from any person or entity with
respect thereto, and (ii) any Tax benefits to the Indemnitee as a result of the
Indemnifiable Losses involved and (y) excluding any such losses, liabilities,
damages, costs and expenses to the extent that the underlying liability or
obligation is the result of any action taken or omitted to be taken by any
Indemnitee. For purposes of this 12.3(a), the amount of any Tax benefits to the
Indemnitee shall be deemed to be equal to the net present value amount of the
reduction in federal, state and local income or franchise Taxes or the increase
of a Tax loss or credit determined on the basis of the maximum marginal Tax
rates in effect for the Taxable period when payment is made by the Indemnifying
Party (regardless of whether the Indemnitee realizes or will realize an actual
reduction in federal, state or local income or franchise Taxes).
(b) Notwithstanding anything to the contrary contained in
this Agreement, if the Closing occurs, (i) no claim for indemnification may be
asserted under Section 12.2(a)(i) or Section 12.2(a)(ii) with respect to any
matter (x) known to Buyer on or before the date of this Agreement, or (y) after
the date of this Agreement and on or before the Closing Date to the extent that
such matter became known to Buyer prior to Closing and Buyer did not provide
timely notice to Sellers of the existence of such claim or condition in
accordance with Section 10.2(c), and (ii) no claim for indemnification may be
asserted under Section 12.2(b)(i) or Section 12.2(b)(ii) with respect to any
matter discovered by or known to Sellers on or before the date of this
Agreement.
(c) As between Sellers and any Affiliate of Sellers, on the
one hand, and Buyer and any Affiliate of Buyer, on the other hand, the remedies,
rights and obligations set forth in this Article 12, Sections 10.1.2, 11.2.2,
11.7, 13.3 and the Ancillary Agreements will be the exclusive remedies, rights
and obligations with respect to the liabilities and obligations referred to in
Section 12.2 and any breach of the representations, warranties or covenants set
forth in this Agreement. Without limiting the foregoing, as a material
inducement to entering into this Agreement, to the fullest extent permitted by
law, each of the parties waives any claim or cause of action that it otherwise
might assert, and any breach of the representations, warranties or covenants set
forth in this Agreement, except for claims or causes of action brought under and
subject to the terms and conditions of this Article 12 and Sections 10.1.2, 11.7
and 13.3, and claims based on common law fraud.
(d) Notwithstanding any other provision of this Agreement or
of any applicable Law, no Indemnitee will be entitled to make a claim against an
Indemnifying Party under Sections 11.2.2, 11.7, 12.2(a)(i), 12.2(a)(ii),
12.2(b)(i) or 12.2(b)(ii) until:
(i) the aggregate amount of Indemnifiable Losses
incurred by the Indemnitee for any individual occurrence giving rise to such
Indemnifiable Losses exceeds $25,000, and
(ii) the aggregate amount of claims that may be
asserted for such Indemnifiable Losses pursuant to Section 12.3(d)(i) exceeds an
amount equal to two percent (2%) of the Purchase Price, but only to the extent
such amount, if any, (a) exceeds an amount equal to two percent (2%) of the
Purchase Price, or in the case of claims for breaches of Section 8.1.19 only,
exceeds an amount equal to $7,000,000 (provided that Indemnifiable Losses with
respect to breaches of Section 8.1.19 shall be payable as Indemnifiable Losses
in excess of the $7,000,000 basket or the two percent (2%) basket, but not
both), and (b) is less than the amount set forth in Section 12.3(e).
(e) Notwithstanding any other provision of this Agreement,
the indemnification obligations of Sellers under Section 12.2(a) (except with
respect to indemnification for inaccuracies of the representations contained in
Sections 8.1.1 through 8.1.6) or the indemnification obligation of Buyer under
Section 12.2(b) will not exceed the amount of an amount equal to ten percent
(10%) of the Purchase Price respectively, after subtracting the floor amount
specified in Section 12.3(d)(ii).
(f) No Indemnifying Party shall be liable to or obligated
to indemnify any Indemnitee hereunder for any consequential, special, multiple,
punitive or exemplary damages including, but not limited to, damages arising
from loss or interruption of business, profits, business opportunities or
goodwill, loss of use of facilities, loss of capital, claims of customers, or
any cost or expense related thereto, except to the extent such damages have been
recovered by the Indemnifying Party under its insurance or have been received by
a third person and are the subject of a Third Party Claim for which
indemnification is available under the express terms of this Section 12.
(g) Notwithstanding anything in this Agreement to the
contrary, Sellers shall not be liable to or obligated to indemnify Buyer or any
other Indemnitee hereunder for any claim that any of Sellers' representations or
warranties in Section 8.1 is inaccurate, or that any covenant has been breached,
if such claim is predicated on any action by a Governmental Authority (other
than a Tax authority) undertaken after Closing or any action a Governmental
Authority (other than a Tax authority) requires Sellers to undertake after
Closing.
(h) From the date hereof through the Expiration Date, Buyer
shall not be eligible to seek indemnification from Sellers with respect to any
resulting Indemnifiable Losses, and shall indemnify Sellers from any losses,
liabilities, damages, costs and expenses (including reasonable attorneys' fees
and expenses and reasonable costs of investigation) actually incurred in
connection with any resulting actions, suits, demands, assessments, judgments
and settlements in the event that Buyer, without the prior written consent of
Sellers: (i) undertakes any environmental remediation activity with respect to
any Owned Real Property; or (ii) contacts, or causes or permits any of its
subsidiaries, affiliates, agents, employees, officers or directors to contact on
its behalf, any Governmental Authority for the purpose of initiating any
investigation or inquiry as to the compliance by Sellers with Environmental
Requirements with respect to the Owned Real Property, except in each case as is
required to comply with applicable Environmental Requirements.
(i) Sellers and Buyer shall cooperate with each other
with respect to resolving any claim or liability with respect to which one party
is obligated to indemnify the other party hereunder, including by making
commercially reasonable efforts to mitigate or resolve any such claim or
liability.
12.4 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of
any claim or of the commencement of any action or proceeding by any entity that
is not a party to this Agreement or an Affiliate of such a party (a "Third Party
Claim") against such Indemnitee, with respect to which an Indemnifying Party is
obligated to provide indemnification under this Agreement, the Indemnitee will
give such Indemnifying Party reasonably prompt written notice thereof, but in
any event not later than ten (10) calendar days after receipt of notice of such
Third Party Claim; provided, however, that the failure of the Indemnitee to
notify the Indemnifying Party shall only relieve the Indemnifying Party from its
obligation to indemnify the Indemnitee pursuant to this Article 12 to the extent
that the Indemnifying Party is materially prejudiced by such failure (whether as
a result of the forfeiture of substantive rights or defenses or otherwise). Upon
receipt of notification of a Third Party Claim, the Indemnifying Party shall be
entitled, upon written notice to the Indemnitee, to assume the investigation and
defense thereof with counsel reasonably satisfactory to the Indemnitee. Whether
or not the Indemnifying Party elects to assume the investigation and defense of
any Third Party Claim, the Indemnitee shall have the right to employ separate
counsel and to participate in the investigation and defense thereof; provided,
however, that the Indemnitee shall pay the fees and disbursements of such
separate counsel unless (i) the employment of such separate counsel has been
specifically authorized in writing by the Indemnifying Party, (ii) the
Indemnifying Party has failed to assume the defense of such Third Party Claim
within reasonable time after receipt of notice thereof with counsel reasonably
satisfactory to such Indemnitee, or (iii) the named parties to the proceeding in
which such claim, demand, action or cause of action has been asserted include
both the Indemnifying Party and such Indemnitee and, in the reasonable judgment
of counsel to such Indemnitee, there exists one or more defenses that may be
available to the Indemnitee that are in conflict with those available to the
Indemnifying Party. Notwithstanding the foregoing, the Indemnifying Party shall
not be liable for the fees and disbursements of more than one counsel for all
Indemnified Parties in connection with any one proceeding or any similar or
related proceedings arising from the same general allegations or circumstances.
Without the prior written consent of the Indemnitee, the Indemnifying Party will
not enter into any settlement of any Third Party Claim that would lead to
liability or create any financial or other obligation on the part of the
Indemnitee unless such settlement includes as an unconditional term thereof the
release of the Indemnitee from all liability in respect of such Third Party
Claim. If a settlement offer solely for money damages is made by the applicable
third party claimant, and the Indemnifying Party notifies the Indemnitee in
writing of the Indemnifying Party's willing-ness to accept the settlement offer
and pay the amount called for by such offer without reservation of any rights or
defenses against the Indemnitee, the Indemnitee may continue to contest such
claim, free of any participation by the Indemnifying Party, and the amount of
any ultimate liability with respect to such Third Party Claim that the
Indemnifying Party has an obligation to pay hereunder shall be limited to the
lesser of (A) the amount of the settlement offer that the Indemnitee declined to
accept plus the Losses of the Indemnitee relating to such Third Party Claim
through the date of its rejection of the settlement offer or (B) the aggregate
Losses of the Indemnitee with respect to such claim.
(b) Any claim by an Indemnitee on account of an Indemni-
fiable Loss that does not result from a Third Party Claim (a "Direct Claim")
will be asserted by giving the Indemnifying Party reasonably prompt written
notice thereof, but in any event not later than thirty (30) calendar days after
the receipt of notice thereof, and the Indemnifying Party will have a period of
thirty (30) calendar days within which to respond in writing to such Direct
Claim. If the Indemnifying Party does not so respond within such thirty (30)
calendar day period, the Indemnifying Party will be deemed to have rejected such
claim, in which event the Indemnitee will be free to pursue such remedies as may
be available to the Indemnitee on the terms and subject to the provisions of
this Article 12.
(c) If after the making of any Indemnification Payment the
amount of the Indemnifiable Loss to which such payment relates is reduced by
recovery, settlement or otherwise under any insurance coverage, or pursuant to
any claim, recovery, settlement or payment by or against any other entity, the
amount of such reduction (less any costs, expenses, premiums or taxes incurred
in connection therewith) will promptly be repaid by the Indemnitee to the
Indemnifying Party. Upon making any Indemnification Payment, the Indemnifying
Party will, to the extent of such Indemnification Payment, be subrogated to all
rights of the Indemnitee against any third party that is not an Affiliate of the
Indemnitee in respect of the Indemnifiable Loss to which the Indemnification
Payment relates; provided that (i) the Indemnifying Party shall then be in
compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss, and (ii) until the Indemnitee recovers full payment of its
Indemnifiable Loss, all claims of the Indemnifying Party against any such third
party on account of said Indemnification Payment will be subrogated and
subordinated in right of payment to the Indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision of this
Article 12, each such Indemnitee and Indemnifying Party will duly execute upon
request all instruments reasonably necessary to evidence and perfect the
above-described subrogation and subordination rights.
ARTICLE 13
TERMINATION
13.1 Termination Rights. This Agreement may be terminated at any time
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prior to the Closing Date:
(a) at any time by mutual written consent of the parties;
(b) by Buyer if any of the conditions provided in Section
6.1 of this Agreement have not been met within eighteen (18) months after
execution of this Agreement and have not been waived by Buyer;
(c) by Sellers if any of the conditions provided in Section
6.2 of this Agreement have not been met within eighteen (18) months after
execution of this Agreement and have not been waived by Sellers; or
(d) by Sellers if any obligations of Buyer provided in
Article 3 become incapable of being fulfilled.
13.2 Good Faith Performance. Neither party shall be entitled to exercise
any right of termination pursuant to subsection 13.1(b),(c) or (d) above if such
party shall not have performed diligently and in good faith the obligations
required to be performed by such party hereunder prior to the date of
termination.
13.3 Effect of Termination.
----------------------
(a) If this Agreement is terminated as a result of a
Material Adverse Effect or Section 13.1(a), this Agreement shall be of no
further force and effect and there shall be no further liability hereunder
(except the obligations under the Confidentiality Agreement and the liability
for breach of such obligations) on the part of either party or their respective
Affiliates, directors, officers, shareholders, agents or other representatives.
(b) If this Agreement is terminated by Buyer pursuant to
Section 13.1(b), this Agreement shall be of no further force and effect and
there shall be no further obligations or liability hereunder (except the
obligations under the Confidentiality Agreement and the liability for breach of
such obligations) on the part of either party or their respective Affiliates,
directors, officers, shareholders, agents or other representatives; provided,
however, that (i) in the event that such termination is the result of one or
more Sellers' willful or negligent failure to fulfill their conditions to
Closing under Section 6.1 and Buyer has fulfilled its conditions to Closing
under Section 6.2, and Sellers have failed to cure such non-performance within a
reasonable period after notice from Buyer, then Sellers jointly and severally
shall pay Buyer liquidated damages in an amount equal to the Deposit, and (ii)
Sellers shall promptly refund the Deposit following such termination. Payment of
the amount of the Deposit by Sellers as liquidated damages and return of the
Deposit to Buyer shall be Buyer's sole and exclusive remedy. Sellers shall
promptly pay such amount to Buyer in immediately available funds following such
termination. Notwithstanding anything herein to the contrary, in no event shall
any act or omission of Sellers in connection with the Merger be deemed to be a
breach of the terms and conditions of this Agreement for purposes of this
Section 13.3(b).
(c) If this Agreement is terminated by Sellers pursuant to
Section 13.1(c) or (d), this Agreement shall be of no further force and effect
and there shall be no further obligations or liability hereunder (except the
obligations under the Confidentiality Agreement and the liability for breach of
such obligations) on the part of either party or their respective Affiliates,
directors, officers, shareholders, agents or other representatives; provided,
however, that Sellers shall be entitled to retain the Deposit as liquidated
damages as Sellers' sole and exclusive remedy if such termination is (i) the
result of Buyer's willful or negligent failure to fulfill its conditions to
Closing under Section 6.2 and Sellers have fulfilled their conditions to Closing
under Section 6.1, and Buyer has failed to cure such non-performance within a
reasonable period after notice from Seller; or (ii) the result of Buyer's
incapacity to fulfill its obligations under Article 3.
(d) Upon any termination of the Agreement, each of the
parties shall promptly comply with the obligations of the Confidentiality
Agreement regarding return or destruction of Evaluation Material of the other
party.
(e) Notwithstanding anything to the contrary contained
herein, the provisions of this Section 13.3 and of Sections 14.1, 14.2, 14.3,
14.8, 14.11, 14.13 and 14.14, shall survive any termination of this Agreement.
ARTICLE 14
MISCELLANEOUS
14.1 Notices. All notices and other communications required or permitted
hereunder shall be in writing and, unless otherwise provided in this Agreement,
will be deemed to have been given when delivered in person or dispatched by
electronic facsimile transfer (confirmed in writing by certified mail,
concurrently dispatched) or one business day after having been dispatched for
next-day delivery by a nationally recognized overnight courier service to the
appropriate party at the address specified below:
(a) If to Buyer, to:
CenturyTel, Inc.
100 Century Park Drive
Monroe, LA 71203
` Facsimile No.: 318-388-9488
Attention: R. Stewart Ewing, Jr.
Executive Vice President and
Chief Financial Officer
Stacey W. Goff
General Counsel's Office
With a copy to:
William R. Boles, Jr.
Boles, Boles & Ryan
1805 Tower Drive
Monroe, LA 71201
Facsimile No.: 318-329-9150
(b) If to Sellers, to:
William M. Edwards, III
Vice President - Property Repositioning
600 Hidden Ridge, HQE02J27
Irving, TX 75038
Facsimile No. (972) 719-7062
With a copy to:
Dale R. Chamberlain
Legal Counsel - Property Repositioning
600 Hidden Ridge, HQE02J34
Irving, TX 75038
Facsimile No. (972) 719-7162
or to such other address or addresses as any such party may from time to time
designate for itself by like notice.
14.2 Information Releases. The parties shall consult with each other (and
allow the other party notice, and a reasonable time to comment) in preparing any
employee announcement, press release, public announcement, news media response
or other form of release of information concerning this Agreement or the
transactions contemplated hereby that is intended to provide such information to
the employees generally, news media or the public. Neither party shall issue or
cause the publication of any press release, public announcement or media
response without the prior written consent of the other party; provided,
however, that, after allowing the other party notice and a reasonable time to
comment prior to issuance, nothing herein will prohibit either party from making
an employee announcement, or issuing or causing publication of any press
release, public announcement or media response to the extent that such action is
required by applicable Law or the rules of any national stock exchange
applicable to such party or its Affiliates.
14.3 Expenses. Whether or not the transactions contemplated hereby are
consummated and except as otherwise expressly provided herein, each party will
pay any expenses (including attorneys' fees) incurred by it incidental to this
Agreement and in consummating the transactions provided for herein.
14.4 Successors and Assigns.This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, but is not assignable or delegable by any party without the
prior written consent of the other party; provided, that (i) Sellers may assign
this Agreement to an Affiliate of Sellers without the consent of Buyer
including, on and after the closing of the Merger, the ultimate parent entity of
the successor corporation to such merger or any entity controlled thereby and
(ii) Buyer may assign its rights under this Agreement to one or more
wholly-owned subsidiaries, provided that Buyer shall remain responsible for all
of its obligations under this Agreement.
14.5 Amendments. This Agreement may be amended or modified only by a
subsequent writing signed by authorized representatives of both parties.
14.6 Captions. The captions set forth in this Agreement are for
convenience only and shall not be considered as part of this Agreement, nor as
in any way limiting or amplifying the terms and provisions hereof.
14.7 Entire Agreement. The term "Agreement" shall mean collectively this
document, the Schedules hereto and any agreements expressly incorporated herein.
This Agreement supersedes and revokes any prior discussions and representations,
other agreements, commitments, arrangements or understandings of any sort
whatsoever, whether oral or written, that may have been made or entered into by
the parties relating to the matters contemplated hereby, except the
Confidentiality Agreement. This Agreement, the Confidentiality Agreement and the
Ancillary Documents constitute the entire agreement by and among the parties
with respect to the subject matter hereof, and there are no representations,
warranties, agreements, commitments, arrangements or understandings except as
expressly set forth herein.
14.8 Waiver. Except as otherwise expressly provided in this Agreement,
neither the failure nor any delay on the part of any party to exercise any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise or waiver of any such right, power or privilege
preclude any other or further exercise thereof, or the exercise of any other
right, power or privilege available to each party at law or in equity.
14.9 Third Parties. Except as expressly provided herein,nothing contained
in this Agreement is intended to confer upon any Person, other than the parties
hereto and their successors and permitted assigns, any rights or remedies under
or by reason of this Agreement.
14.10 Counterparts. This Agreement may be executed in two or more counter-
parts, any or all of which shall constitute one and the same instrument.
14.11 Governing Law. This Agreement and the Ancillary Agreements shall in
all respects be governed by and construed in accordance with the laws of the
State of New York (except that no effect shall be given to any conflicts of law
principles of the State of New York that would require the application of the
laws of any other jurisdiction). The parties irrevocably submit to the exclusive
jurisdiction of any Arkansas District Court or any Federal Court located in
Arkansas for purposes of any suit, action or other proceeding arising out of
this Agreement, the Ancillary Agreements or any transaction contemplated hereby
or thereby. The parties agree that service of process, summons or notice or
document by U.S. registered mail to such party's respective address set forth in
Section 14.1 shall be effective service of process for any action, suit or
proceeding in Arkansas with respect to any matters to which it has submitted to
jurisdiction as set forth above in the immediately preceding sentence. The
parties hereto irrevocably and unconditionally waive trial by jury in any legal
action or proceeding relating to this Agreement or any other agreement entered
into in connection therewith and for any counterclaim with respect thereto. In
the event of any breach of the provisions of this Agreement or any other
agreement entered into in connection therewith, the non-breaching party shall be
entitled to equitable relief, including in the form of injunctions and orders
for specific performance, where the applicable legal standards for such relief
in such courts are met, in addition to all other remedies available to the
non-breaching party with respect thereto at law or in equity.
14.12 Further Assurances. From time to time, as and when requested by one
of the parties, the other party will use its commercially reasonable efforts to
execute and deliver, or cause to be executed and delivered, all such documents
and instruments as may be reasonably necessary or appropriate, in the reasonable
opinion of counsel for Sellers and Buyer, to consummate and make effective the
transactions contemplated by this Agreement.
14.13 Severability. If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Authority, the remaining
provisions of this Agreement to the extent permitted by Law shall remain in full
force and effect provided that the essential terms and conditions of this
Agreement for both parties remain valid, binding and enforceable and provided
that the economic and legal substance of the transactions contemplated is not
affected in any manner materially adverse to any party. In the event of any such
determination, the parties agree to negotiate in good faith to modify this
Agreement to fulfill as closely as possible the original intents and purposes
hereof. To the extent permitted by Law, the parties hereby to the same extent
waive any provision of Law that renders any provision hereof prohibited or
unenforceable in any respect.
14.14 Representation by Counsel; Interpretation. Sellers and Buyer each
acknowledge that each party to this Agreement has been represented by counsel in
connection with this Agreement and the transactions contemplated by this
Agreement. Accordingly, any rule of Law or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived. The provisions of
this Agreement shall be interpreted in a reasonable manner to effect the intent
of Buyer and Sellers.
IN WITNESS WHEREOF, the parties, acting through their duly
authorized agents, have caused this Agreement to be duly executed and delivered
as of the date first above written.
GTE ARKANSAS INCORPORATED CENTURYTEL, INC.
By: /s/ William M. Edwards, III By: /s/ R. Stewart Ewing, Jr.
Name: William M. Edwards, III Name: R. Stewart Ewing, Jr.
Title: VP - Property Repositioning Title: Executive Vice President
and CFO
GTE MIDWEST INCORPORATED
By: /s/ William M. Edwards, III
Name: William M. Edwards, III
Title: VP - Property Repositioning
GTE SOUTHWEST INCORPORATED
By: /s/ William M. Edwards, III
Name: William M. Edwards, III
Title: VP - Property Repositioning
