File No. 333-
As filed with the Securities and Exchange Commission on December 17, 1996
- -------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CITIZENS UTILITIES COMPANY
(Exact name of registrant as specified in charter)
DELAWARE 06-0619596
(State or other jurisdiction of (I.R.S. employer identification number)
incorporationor organization)
High Ridge Park, Bldg. No. 3, Stamford, Connecticut 06905
(203) 329-8800
(Address, including, zip code, and telephone number, including area code,
of registrant's principal executive offices)
Robert J. DeSantis
Vice President and Treasurer
Citizens Utilities Company
High Ridge Park, Bldg. No. 3
P.O. Box 3801
Stamford, Connecticut 06905
Tel. No. (203) 329-8800
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
--------------------------------------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CALCULATION OF REGISTRATION FEE
---------------------- ---------------------- ------------------------- ----------------------- ----------------
Title of Securities to Amount to be Proposed Maximum Proposed Maximum Amount of
be Registered Registered Aggregate Price Per Aggregate Offering Price Registration Fee
Unit
========================= ====================== ====================== ========================= ===================
Common Stock* 2,832,432 shares** $11.1875*** $31,687,833*** $10,927
========================= ====================== ====================== ========================= ===================
</TABLE>
* Includes shares of Common Stock Series A and Common Stock Series B
issuable upon conversion of Common Stock Series A.
** This Registration Statement shall be deemed to cover additional
securities to be issued in connection with or as a result of stock
splits, stock dividends or similar transactions.
*** Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. Based on the average of the reported high and
low sales prices of shares of Common Stock Series A on December 10,
1996.
- ---------------------
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 17, 1996
PROSPECTUS
2,832,432 Shares
CITIZENS UTILITIES COMPANY
COMMON STOCK
This Prospectus, with the prior consent of Citizens Utilities Company,
(the "Company" or Citizens") may be used by persons("Selling Stockholders")who
have received 1,289,133 shares of Common Stock Series A, par value $.25 per
share, which is convertible into Common Stock Series B, par value $.25 per share
(together, the "Common Stock"), of the Company in connection with the merger
(the "Merger") between a wholly-owned subsidiary of Citizens and Conference-Call
USA, Inc., as more fully described herein, and who may wish to sell such stock
in circumstances requiring or making desirable its use. This Prospectus also
covers up to 1,443,299 additional shares of Common Stock which the Selling
Stockholders have the contractual right to receive in the future in connection
with the Merger, as well as up to 100,000 additional shares of Common Stock
which Selling Stockholders may otherwise receive in connection with the Merger,
and which they also may wish to sell in circumstances requiring or making
desirable its use. See "Plan of Distribution".
The Selling Stockholders may sell the shares of Common Stock covered by
this Prospectus privately in negotiated transactions or publicly in one or more
transactions, as described more fully herein. See "Plan of Distribution".
Selling Stockholders and broker-dealers that participate with Selling
Stockholders in such sales of Common Stock, and any brokers or finders who
receive Common Stock as fees, may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933 (the "Act"), and any
commissions or fees received by them and any profit on the resale of shares of
Common Stock may be deemed to be underwriting compensation. The Company will not
receive any of the proceeds of the sale of shares of Common Stock by any such
person.
The Company has agreed to be liable to the Selling Stockholders for
certain liabilities, including liabilities under the Act.
The Common Stock Series A and Common Stock Series B are listed under
the symbols "CZNA" and "CZNB", respectively, on the NYSE.
--------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------------------
The date of this Prospectus is December __, 1996
<PAGE>
AVAILABLE INFORMATION
Citizens is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act") and in accordance therewith files reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "SEC"). Such reports, proxy and information statements
and other information can be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at its regional offices at Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661 and Suite 1300, 7 World Trade Center,
New York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D. C.
20549, at prescribed rates. The SEC also maintains a web site
(htp://www.sec.gov.) that contains reports, proxy and information statements and
other information regarding Citizens. Certain securities of Citizens are listed
on the New York Stock Exchange, 20 Broad Street, New York, New York 10005, and
reports, proxy material and other information concerning Citizens may be
inspected at the office of that Exchange.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC pursuant to the 1934
Act are incorporated into this Prospectus by reference:
The Company's Annual Report on Form 10-K for the year ended December 31, 1995.
The Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30 and September 30, 1996.
The Company's Current Reports on Form 8-K filed on March 29, and May 28, 1996.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the 1934 Act prior to the termination of the
offering of the Common Stock shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents.
The Company hereby undertakes to provide, without charge, to each
person to whom a copy of this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents referred to above
which have been or may be incorporated by reference in this Prospectus, other
than exhibits to such documents not specifically incorporated by reference
herein. Requests for such copies should be directed to Office of the Secretary,
Citizens Utilities Company, High Ridge Park, Bldg. No. 3, Stamford, Connecticut
06905 (telephone 203-329-8800).
2
<PAGE>
CITIZENS UTILITIES COMPANY
Citizens Utilities Company is a diversified operating company which
provides, either directly or through subsidiaries, telecommunications, natural
gas transmission and distribution, electric distribution, water or wastewater
services to customers in areas of twenty states. Divisions of Citizens provide
electric distribution and natural gas transmission and distribution services,
purchasing most of the electric power needed and all gas supplies.
Telecommunications, water and wastewater services are provided either by
divisions of Citizens or by its subsidiaries. Citizens is the fifteenth largest
local telecommunications company in the nation. Citizens also holds a
significant investment interest in Centennial Cellular Corp., a cellular
telephone company, and owns Electric Lightwave, Inc., an alternative
telecommunications service provider operating in five western states, and
Citizens Long Distance. Beginning with 1945, Citizens has increased its
revenues, net income and earnings per share (adjusted for subsequent stock
dividends and stock splits) every year without interruption.
Citizens, with administrative offices at High Ridge Park, Stamford,
Connecticut 06905 (telephone (203) 329-8800), was incorporated in Delaware in
1935 to acquire the assets and business of a predecessor corporation. Since
then, Citizens has grown as a result of investment in its own operations and the
acquisition of numerous additional operations.
As a result of its diversification, Citizens is not dependent upon any
single geographic area or any one type of service for its revenues. No single
state regulatory body regulates a utility service of Citizens accounting for
more than 11% of Citizens' revenues for the twelve months ended September 30,
1996. The Federal Communications Commission regulates interstate
telecommunications access services of Citizens under price cap regulation which
allows Citizens considerable flexibility in its pricing. Citizens is not aware
of any other utility company as fully diversified in both geographic areas
served and variety of services provided. Citizens' operations are conducted
principally in small and medium-sized communities. No material part of Citizens'
business is dependent upon a single customer or a small group of customers. The
loss of any single customer or a small group of customers would not have a
materially adverse effect upon Citizens. Citizens' customer connections have
increased from 26,150 in 1945, to 225,389 in 1965, to 610,585 in 1985, and over
1,800,000 as of September 30, 1996.
Citizens continually considers and is carrying out expansion through
acquisitions and joint ventures in the rapidly evolving telecommunications and
cable television industries and in traditional public utility and related
businesses.
USE OF PROCEEDS
This Prospectus relates to shares of Common Stock issued and to be
issued to the Selling Stockholders in connection with the Merger, which may be
sold by the Selling Stockholders from time to time. There will be no proceeds to
the Company from any sales of shares by the Selling Stockholders.
3
<PAGE>
FINANCIAL INFORMATION
Reference is made to the Annual, Quarterly and other Reports and
documents filed and to be filed with the SEC pursuant to the 1934 Act which are
incorporated herein by reference.
CAPITAL REQUIREMENTS AND FINANCING
Citizens carries out a continuous construction program to maintain
reliable and safe service and to meet future customer service requirements.
Citizens estimates that expenditures for construction, extension and improvement
of service will require approximately $463 million in 1997. Citizens'
construction program is under continuous review and may be revised depending on
business and economic conditions, regulatory action, governmental mandates,
customer demand and other factors. Capital requirements will be financed from
internally generated funds, offered securities, the issuance of taxable and
tax-exempt long-term debt, short-term borrowings, customer advances, and
contributions in aid of construction.
Citizens maintains $600 million of committed bank lines of credit for
general corporate purposes under which there were no amounts outstanding as of
December 16, 1996.
DESCRIPTION OF COMMON STOCK SERIES A AND SERIES B
Citizens' common stock consists of two series: Common Stock Series A
and Common Stock Series B. Citizens has authorized 250,000,000 shares of Common
Stock Series A and 350,000,000 shares of Common Stock Series B. As of December
6, 1996 Citizens had outstanding 154,292,360 shares of Common Stock Series A and
82,965,198 shares of Common Stock Series B. As of December 6, 1996 there were
27,522 record holders of Common Stock Series A and 23,270 record holders of
Common Stock Series B. The holders of Common Stock Series A and Common Stock
Series B are entitled to one vote for each share on all matters voted on by
stockholders. Pursuant to Citizens' Restated Certificate of Incorporation, the
holders of Common Stock Series A and the holders of Common Stock Series B vote
together as a single class on all matters to be voted on by stockholders, unless
otherwise expressly required by applicable law. Common Stock Series A is
convertible, on a share-for-share tax-free basis and at no cost to stockholders,
into Common Stock Series B at all times. Common Stock Series B is not
convertible into Common Stock Series A. The Board of Directors of Citizens may,
in its sole discretion and at any time, require all of the holders of Common
Stock Series A to exchange all of their shares of Common Stock Series A for
shares of Common Stock Series B on a share-for-share basis. The holders of
Common Stock Series A and Common Stock Series B participate ratably in
liquidation. The holders of Common Stock Series A and Common Stock Series B have
no preemptive rights.
4
<PAGE>
DIVIDENDS ON COMMON STOCK SERIES A AND SERIES B
The holders of Common Stock Series A and Common Stock Series B are
entitled to receive dividends when and as declared by the Board of Directors of
Citizens out of funds legally available therefor. Dividends have been paid to
holders of common stock every year without interruption beginning in 1939 and,
although there can be no assurances as to the amount of any future dividends,
Citizens has increased cash dividends and/or cash value equivalents every year
without interruption beginning in 1946. Beginning in 1956, when the two-series
common stock capitalization of Citizens was initiated, through 1989, only stock
dividends were paid on Common Stock Series A and only cash dividends were paid
on Common Stock Series B. Commencing in 1990, Citizens has declared and paid
quarterly stock dividends at the same rate on shares of both Common Stock Series
A and Common Stock Series B. The stock dividend rate is based on an underlying
cash equivalent. Citizens expects that under present United States federal tax
law, stock dividends on Common Stock Series A and Common Stock Series B, if paid
and received pro-rata and otherwise in the same manner as they have been since
1990, will be free of current federal income taxation on receipt. Such stock
dividends are treated as capital transactions when and if sold. Gain or loss is
based on the difference between sales price and adjusted basis per share.
To the extent that stock dividends are declared on the Common Stock
Series B, the same stock dividend must be declared on the Common Stock Series A.
To the extent that cash dividends are paid out of funds that are legally
available on the Common Stock Series B, stock dividends with an equivalent fair
value must be paid during the same calendar year on the Common Stock Series A,
unless cash dividends are declared on the Common Stock Series A at the same time
and in an equal amount as on the Common Stock Series B.
STOCK DIVIDEND SALE PLAN AND CONVERSION OF
COMMON STOCK SERIES A INTO COMMON STOCK SERIES B
Citizens has a Stock Dividend Sale Plan (the "Plan") which enables
Common Stock Series B stockholders to elect to have their future stock dividends
sold and the cash proceeds of the sale (minus a per share commission, currently
2 cents) distributed to them quarterly. If a Common Stock Series B stockholder's
account is held by a broker or custodial institution participating in the Plan,
the cash proceeds are sent to the broker or custodial institution. Generally,
for United States federal income tax purposes, the differences between the
proceeds from the sale of the stock dividends (the net cash received) and the
adjusted basis of the shares sold are treated as a capital transaction. Holders
of Common Stock Series A may at any time convert, on a share-for-share tax-free
basis and at no cost, their Common Stock Series A shares into Common Stock
Series B shares. A registered stockholder may give instructions to Citizens'
Common Stock Transfer Agent and street name holders may give instructions to
their brokers to accomplish such conversion from Common Stock Series A into
Common Stock Series B, and in conjunction with said conversion, or after such
conversion, may enroll in the Plan.
5
<PAGE>
Common Stock Series B stockholders may enroll throughout the year in
the Plan. After a Common Stock Series B stockholder's account has been enrolled
in the Plan, future stock dividends in that account will be sold quarterly,
unless Citizens' Common Stock Transfer Agent receives written notification from
a Common Stock Series B stockholder to withdraw that account from the Plan.
Stockholders who withdraw an account from the Plan will then receive quarterly
stock dividends and are not eligible to re-enroll that account in the Plan for
12 months.
COMMON STOCK TRANSFER AGENT
The transfer agent for the Company's Common Stock Series A and Common
Stock Series B is Illinois Stock Transfer Company.
SELLING SECURITY HOLDERS
The following table sets forth the number of shares of Common Stock
Series A which may be acquired by each Selling Shareholder as a result of the
Merger, including the maximum number of Earn-Out Shares which are scheduled to
be received as Contingent Payments by March 1, 2000. (See "Plan of
Distribution".) All of such shares are being registered for offer and sale. No
shares were owned by the Selling Shareholders prior to the Merger. Thus if all
of the registered shares are sold in the offering, no Selling Shareholders will
own any shares which are currently owned.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number of Number of
Name Shares Name Shares
- ---- ------ ---- ------
Anderson, Elizabeth 5,647 Dellenbach, Kent H. 14,121
Beery, Kimberly 3,387 Edmanson, Lynn E. 3,387
Blum, Peter 9,038 El Jay Partners c/o Jeffrey J. 10,505
Stahl
Bood, Edward A. 7,907 Fransen, Roger 356
Carey, Joseph 5,647 Fransen, Victor 6,777
Caruso, Richard M. 4,755 Fraser, Robert 615,118
Case, Weldon W. 22,830 Froelich, Cezar M. Tte 8,471
Chapman, Susan 236 Genesse Funding, Inc. 13,555
Attn: Marsh, Stuart
Cline, Richard C. 11,296 Gibbons, James 5,263
Cloonan, James B. & Edythe R. 50,917 Gillman, Charles E. 48,907
Colson, William P. 7,907 Gold, James S. and Flora J. 21,012
6
<PAGE>
Dale, Karen W. Revocable Trust 3,953 Gold, Michael & Elise B. 5,218
Gold, Robert 6,777 McKendrick, George 474
Goldsmith, Mitchell D. 34,856 McMillen, Ron 5,240
Goldstick, Philip S. 1,254 Miehl, Peter & Marion 5,263
Revocable Trust
Hackett, Jim 9,036 Morgan, Burton D. 20,333
Herman, Jerry H. 7,907 Neace, Manuel 3,387
Hershman, Don S. 2,100 Pondy, Mary Ann 6,777
Hughes, Peter, Trust 7,907 Prentice, Bryan 6,777
Isaacs, Lloyd R. Trust 45,782 Pyle, Virginia, 10,438
Piper Jaffray - Custodian
Isaacs, Robert & Wilma 583 Randall, John & Julie 12,425
Ivesdal, Trygve A. 22,593 Robertson, Brooke 15,815
Jones, Richard 3,387 Robertson, Gina 15,815
King Jr., William H. 78,853 Robertson, Hayes 13,555
King Sr., William 157,708 Robertson, Joan 134,456
Kiver, Milton S. Living Trust 25,779 Robertson, Kenneth H. 458,102
Koester, Jeffrey F. 27,111 Rose, Pam 2,258
LaCrosse, Gary 8,969 Ross, Peter J. 1,693
Laschober, Joseph 27,111 Ruderman, Jon M. & Debra 12,425
Lepman, Carol 3,953 S & F Investment, Ltd. 28,242
Longman, Rodney 91,058 Sandberg, Michael & Linda 10,505
Shefsky, Lloyd E. 2,258 Schaller, Michael J. Trustee 9,713
Sheppard, Neil N. 20,333 Shefsky & Froelich Profit Sharing
Sprayregen, Joel J. & Marilyn 10,429 Plan,
f/b/o Stuart K. Taussig
Swanberg, Dorothy 593 Scherer, Robert P. 2,258
Thompson, John G. 45,187 Schwartz, Stephen L. & Terry L. 5,195
7
<PAGE>
Tompkins, Richard M. and Louise C. 1,964 Shapiro, Joel G. 1,580
Western New York Ventures, L.P. 379,947 Taussig, Dr. Lynn M. 767
Willoughby, Keith 1,187 Thomas-Veise, Valerie 11,296
1st Trust-K.W.-IRA
Willoughby Liscelotte 1,187
Wochna, Gerald M. 15,615
Zeitvogel, Nicholas 6,777
Zunamon, Simon 3,387
</TABLE>
Note: The total of the shares of Common Stock in the above table, which lists
full share entitlements, is less than the number of shares shown on the cover
page of this Prospectus because the latter includes fractional share interests
and a reserve for any post-closing working capital adjustments.
PLAN OF DISTRIBUTION
The shares of Common Stock covered by this Prospectus may be sold from
time to time by the Selling Stockholders who have received and may in the future
receive such shares from the Company in connection with the Merger between a
wholly-owned subsidiary of Citizens and Conference-Call USA, Inc. ("CC/USA"), a
Delaware corporation. Pursuant to the Agreement and Plan of Merger dated as of
October 10, 1996 (the "Merger Agreement"), among Citizens, Citizens Conference
Call Company and CC/USA, on December 4, 1996, the securityholders of CC/USA
received 1,289,133 shares of Common Stock of Citizens in exchange for all of the
shares of common and preferred stock of CC/USA which such securityholders owned
or could acquire on such date. This number may be changed based upon certain
post-closing working capital adjustments. The Merger Agreement further provides
that the current securityholders of CC/USA have a right to receive up to
1,443,299 additional shares of Common Stock of Citizens (the "Earn-Out Shares")
(subject to certain adjustments) to be based upon whether CC/USA and/or Dial
Services, Ltd., a Delaware corporation, achieve specified financial results in
future periods. Earn-Out Shares are scheduled to be delivered to the Selling
Stockholders by March 1 of each of 1997, 1998, 1999 and 2000, as determined by
the level of financial results. The total number of shares of Common Stock
covered by this Prospectus is based upon the maximum number of shares of Common
Stock which the Selling Stockholders may receive in the Merger, including
Earn-Out Shares, plus a reserve to cover the results of the post-closing audit
of the net working capital of CC/USA on hand on the closing date.
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<PAGE>
The Company's consent to use of this Prospectus by the Selling
Stockholders is conditioned upon certain terms and conditions contained in the
Merger Agreement, including, without limitation, such persons' agreeing not to
offer any shares of Common Stock without first making certain inquiries of the
Company, and providing certain information to the Company.
Sales of shares of Common Stock by means of this Prospectus may be made
from time to time privately at negotiated prices or publicly in one or more
transactions (which may involve crosses or block transactions) on the New York
Stock Exchange ("NYSE") or otherwise, in special offerings, sales pursuant to
Rule 144 under the Securities Act of 1933 (the "Act"), exchange distributions or
secondary distributions pursuant to and in accordance with the rules of the
NYSE, in the over-the-counter market, or a combination of such methods of sale,
at prices at or reasonably related to market prices at the time of sale or at
negotiated prices. The Selling Stockholders may effect such transactions by
selling shares to or through broker-dealers, which may act as agent or as
principal and, when acting as agent, may receive commissions from the purchasers
as well as from the sellers (if also acting as agent for the purchasers).
Selling Stockholders and brokers or dealers selling shares of Common Stock for
Selling Stockholders or purchasing such shares for purposes of resale may be
deemed to be underwriters under the Act, and any compensation received by any of
them may be deemed underwriting compensation (which compensation may be in
excess of customary commissions). The Company will not receive any of the
proceeds of the sale of shares of Common Stock by any such person.
This Prospectus shall be deemed to cover additional securities to be
issued in connection with or as a result of stock splits, stock dividends or
similar transactions.
The Company has agreed to be liable to the Selling Stockholders for
certain liabilities, including liabilities under the Act.
LEGAL OPINIONS
The validity of the Common Stock will be passed upon by Winthrop,
Stimson, Putnam & Roberts, One Battery Park Plaza, New York, New York, counsel
for the Company. Legal matters relating to required authorization, if any, of
the Common Stock by the public utilities commissions in the various states may
be passed upon by local counsel to Citizens in the states of Arizona, Colorado,
Hawaii, Louisiana, and Vermont. Winthrop, Stimson, Putnam & Roberts may rely
upon such counsel as to certain matters governed by the laws of such states.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995, 1994, and 1993, and for each of the years then ended, incorporated by
reference in this Prospectus from the Company's Annual Report on Form 10-K have
been so incorporated by reference in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
9
<PAGE>
===============================================================
No dealer, salesman or other person has been
authorized to give any information or to make any
representation, other than those contained in this Prospectus,
in connection with the offer made by this Prospectus, and, if
given or made, such information or
representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or
thereof. This Prospectus does not constitute an offer or
solicitation by anyone in any jurisdiction in which such
offer or solicitation is not authorized or in which the
person making such offer is not qualified to do so or to
anyone to whom it is unlawful to make such offer or
solicitation.
-------------------------------
TABLE OF CONTENTS
Prospectus PAGE
----
Available Information.................................... 2
Incorporation of Certain Documents
by Reference........................................... 2
Citizens Utilities Company............................... 3
Use of Proceeds...........................................3
Financial Information.....................................4
Capital Requirements and Financing........................4
Description of Common Stock Series A and Series B.........4
Dividends on Common Stock Series A and Series B ..........5
Stock Dividend Sale Plan and Conversion of Common
Stock Series A into Common Stock Series B ..............5
Common Stock Transfer Agent...............................6
Selling Security Holders .................................6
Plan of Distribution .....................................8
Legal Opinions............................................9
Experts...................................................9
<PAGE>
============================================================
2,832,432 Shares
CITIZENS UTILITIES
COMPANY
Common Stock
-------------------
PROSPECTUS
-------------------
December , 1996
============================================================
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Description Amount(1)
----------- ---------
Securities and Exchange Commission filing fee.............. $ 10,927
Printing................................................... 2,000
Legal Services............................................. 15,000
Accounting Services........................................ 5,000
Blue Sky................................................... 1,500
Miscellaneous.............................................. 5,573
-----
Total(1) $ 40,000
=========
- --------------------
(1) All fees are estimated except for the Securities and Exchange Commission
filing fee.
Item 15. Indemnification of Directors and Officers.
Citizens Utilities Company (the "Company"), being incorporated under the
Delaware General Corporation Law, is empowered by Section 145 of such law to
indemnify officers and directors against certain expenses, liabilities and
payments, including liabilities arising under the Securities Act of 1933, (the
"Act"), as therein provided. In addition, By-Laws 24 and 24A of the Company and
a resolution adopted by the Board of Directors in connection with the issuance
of the Securities provide for indemnification of specified persons, including
officers and directors of the Company for liabilities, including those arising
under said Act, as provided in said By-Laws and resolution. Generally, By-Laws
24 and 24A of the Company provide that, to the fullest extent permitted by
applicable law, the Company shall indemnify and hold harmless, among others, any
officer or director of the Company or any other entity for which he is acting at
the request of the Company, from and against any loss, damage or claim incurred
by such person by reason of any act or omission performed or omitted by such
person in good faith on behalf of the Company and in a manner such person
reasonably believed to be in the best interests of the Company. Such By-Laws,
generally speaking, also provides that, to the fullest extent permitted by
applicable law, expenses (including legal fees) incurred by a person in
defending against any such liability shall, be advanced by the Company subject
to specified conditions. The Certificate of Incorporation further provides that
no director shall be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, with stated exceptions.
The Company also maintains insurance providing coverage for the Company
and its subsidiaries against obligations incurred as a result of indemnification
of officers and directors. The coverage also insures the officers and directors
for a liability against which they may not be indemnified by the Company or its
subsidiaries but excludes specified dishonest acts.
II-1
<PAGE>
Item 16. Exhibits.
An Exhibit Index, containing a list of all exhibits to this registration
statement, commences on page II-7.
Item 17. Undertakings.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Act;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement; notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the
form of a prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that clauses (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
clauses is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-2
<PAGE>
(4) That, for purposes of determining any liability under the Act, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Stamford and State of Connecticut on the 17th
day of December, 1996.
CITIZENS UTILITIES COMPANY
By /s/Robert J. DeSantis
---------------------
Robert J. DeSantis
Vice President and Treasurer
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
KNOW ALL MEN BY THESE PRESENTS, that each person who signature appears
below constitutes and appoints Robert J. DeSantis, as such person's true and
lawful attorney-in-fact and agent, with full power of substitution and
revocation, for such persons and in such person's name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same with all
exhibits thereto, and the other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and things
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his substitute, may lawfully do or cause to
be done by virtue hereof.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
/s/ Leonard Tow Chairman of the Board, Chief December 3, 1996
- -------------------------------------------
(Leonard Tow) Executive, Officer, Chief
Financial Officer and Director
/s/ Robert J. DeSantis Vice President and Treasurer December 3, 1996
- -------------------------------------------
(Robert J. DeSantis)
/s/ Norman I. Botwinik
- ------------------------------------------- Director December 3, 1996
(Norman I. Botwinik)
/s/ James C. Goodale Director December 3, 1996
- -------------------------------------------
(James C. Goodale)
/s/ Aaron I. Fleischman Director December 3, 1996
- -------------------------------------------
(Aaron I. Fleischman)
/s/ Stanley Harfenist Director December 3, 1996
- -------------------------------------------
(Stanley Harfenist)
/s/ Andrew N. Heine Director December 3, 1996
- -------------------------------------------
(Andrew N. Heine)
/s/ Elwood A. Rickless Director December 3, 1996
- -------------------------------------------
(Elwood A. Rickless)
/s/ John L. Schroeder Director December 3, 1996
- -------------------------------------------
(John L. Schroeder)
/s/ Robert D. Siff Director December 3, 1996
- -------------------------------------------
(Robert D. Siff)
/s/ Robert A. Stanger Director December 3, 1996
- -------------------------------------------
(Robert A. Stanger)
II-5
<PAGE>
/s/ Charles H. Symington, Jr. Director December 3, 1996
- -------------------------------------------
(Charles H. Symington, Jr.)
/s/ Edwin Tornberg Director December 3, 1996
- -------------------------------------------
(Edwin Tornberg)
/s/ Claire Tow Director December 3, 1996
- -------------------------------------------
(Claire Tow)
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
2.1 Agreement and Plan of Merger dated as of October 10, 1996,
between Citizens Utilities Company, Citizens Conference Call
Company and Conference-Call USA, Inc.
2.2 Contingent Payment Agreement dated as of December 4, 1996,
between Citizens Utilities Company, Conference-Call USA, Inc.
and CC/USA Representative, Inc.
3.200.1* Restated Certificate of Incorporation of Citizens Utilities
Company, with all amendments to the date hereof.
3.200.2* Bylaws, as amended, of Citizens Utilities Company, with all
amendments to the date hereof.
5.1 Opinion of Winthrop, Stimson, Putnam & Roberts.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Winthrop, Stimson, Putnam & Roberts (to be contained
in Exhibit No. 5.1).
24 Powers of Attorney (Included on pages II-5 and II-6).
- -------------------------
* Exhibit Nos. 3.200.1 and 3.200.2 are incorporated by reference to such
documents bearing the same exhibit designations filed with the Company's
Registration Statement on Form S-3, File No. 333-7047, on June 27,
1996.
The Agreement and Plan of Merger contains a list of exhibits and schedules to
the Agreement on page v thereof. The Company agrees to furnish supplementally a
copy of each omitted exhibit and schedule to the Commission on request.
II-7
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
Dated as of October 10, 1996
by and among
CONFERENCE-CALL USA, INC.,
CITIZENS UTILITIES COMPANY
and
CITIZENS CONFERENCE CALL COMPANY
<PAGE>
TABLE OF CONTENTS
Page
R E C I T A L S.......................................................... 1
- - - - - - - - -
ARTICLE I.
DEFINITIONS.............................................................. 2
- -----------
SECTION 1.1. Definitions.. ........................ 2
-----------
SECTION 1.2. Knowledge............................... 5
---------
ARTICLE II.
THE MERGER............................................................... 5
- ----------
SECTION 2.1. Merger.................................. 5
------
SECTION 2.2. Filing and Effective Time............... 5
-------------------------
SECTION 2.3. Effects of the Merger................... 6
---------------------
SECTION 2.4. Purchase Price; Conversion Formula...... 6
----------------------------------
SECTION 2.5. Conversion of Mergeco Shares............ 7
----------------------------
SECTION 2.6. Dissenters' Rights...................... 7
------------------
SECTION 2.7. Exchange of Certificates; Payment of
------------------------------------
Merger Consideration.................... 7
--------------------
SECTION 2.8. Adjusted Consolidated Working Capital
-------------------------------------
Adjustment.............................. 7
----------
SECTION 2.9. Appraisal Right Adjustment.............. 9
--------------------------
SECTION 2.10. No Fractional Shares.................... 9
--------------------
<PAGE>
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY....... .................... 9
SECTION 3.1. Organization and Authority of
CC/USA and Dial......................... 9
SECTION 3.2. Capitalization.......................... 10
SECTION 3.3. Corporate Organizational Documents...... 10
SECTION 3.4. No Conflict............................. 10
SECTION 3.5. Consents................................ 11
SECTION 3.6. Financial Statements.................... 11
SECTION 3.7. No Undisclosed Liabilities, Etc......... 11
SECTION 3.8. Absence of Certain Changes.............. 11
SECTION 3.9. Title to the Real Property.............. 12
SECTION 3.10. Real Property Leases.................... 12
SECTION 3.11. Title to and Condition of Certain
Personal Property....................... 13
SECTION 3.12. Material Agreements..................... 13
SECTION 3.13. Litigation.............................. 14
SECTION 3.14. Tax Matters............................. 14
SECTION 3.15. Compliance with Law..................... 14
SECTION 3.16. Trademarks and Patents.................. 15
SECTION 3.17. Benefit Plans of the Company............ 15
SECTION 3.18. Environmental and Health/Safety Matters. 17
SECTION 3.19. Corporate Records....................... 18
SECTION 3.20. Depositories............................ 18
SECTION 3.21. Insurance............................... 18
SECTION 3.22. True and Complete Copies................ 19
SECTION 3.23. Brokerage............................... 19
SECTION 3.24. Tariffs: FCC Licenses, Non-FCC
Authorizations.......................... 19
SECTION 3.25. Transactions with Affiliates............ 20
SECTION 3.26. Labor Matters........................... 20
SECTION 3.27. Full Disclosure......................... 20
SECTION 3.28. Regulation D Compliance................. 20
SECTION 3.29 Antitrust Law Compliance.................21
SECTION 3.30. Business Information.................... 21
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE PARENT............................. 22
SECTION 4.1. Organization and Authority.............. 22
SECTION 4.2. No Conflict............................. 22
SECTION 4.3. Consents................................ 23
SECTION 4.4. Brokerage............................... 23
SECTION 4.5. Investment Representations.............. 23
SECTION 4.6. CUC Common Shares....................... 23
SECTION 4.7. Registration Statement.................. 23
<PAGE>
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF MERGECO................................ 23
SECTION 5.1. Organization and Authority.............. 24
SECTION 5.2. No Conflict............................. 24
SECTION 5.3. Consents................................ 24
SECTION 5.4. Mergeco Capitalization.................. 24
SECTION 5.5. Business Activity....................... 24
ARTICLE VI.
COVENANTS OF THE PARTIES PENDING CLOSING................................. 24
SECTION 6.1. Third Party Debt........................ 25
SECTION 6.2. Antitrust Law Compliance................ 25
SECTION 6.3. Conduct of Business..................... 25
SECTION 6.4. Confidentiality......................... 27
SECTION 6.5. No Public Announcement ..................27
SECTION 6.6. Conversions of Equity Equivalents....... 27
SECTION 6.7. Notification of Changes; Disclosure
Schedule Updates........................ 27
SECTION 6.8. Conduct of Business of Mergeco.......... 27
SECTION 6.9. Consents of Third Parties, Government... 27
-ii-
SECTION 6.10. Pre-Closing Actions..................... 28
SECTION 6.11. Meetings of Shareholders................ 28
SECTION 6.12. Affiliate Letters....................... 29
SECTION 6.13. No Solicitation......................... 29
SECTION 6.14. Access to Information................... 29
SECTION 6.15. Further Assurances...................... 30
ARTICLE VII.
ADDITIONAL COVENANTS OF THE PARTIES........................ ............. 30
SECTION 7.1. Registration Statement..... ............ 30
ARTICLE VIII.
CONDITIONS TO THE OBLIGATIONS OF THE PARENT ............................. 31
SECTION 8.1. Representations and Warranties;
Performance............................. 31
SECTION 8.2. Authorizations, Approvals and Consents.. 31
SECTION 8.3. No Proceeding or Litigation............. 32
SECTION 8.4. Other Documents......................... 32
SECTION 8.5. Adverse Change.......................... 32
SECTION 8.6. Opinion of Counsel...................... 32
SECTION 8.7. Corporate Action........................ 32
SECTION 8.8. Affiliate Letters....................... 32
SECTION 8.9. Dissenting Shareholders................. 32
SECTION 8.10. Stock Options........................... 33
SECTION 8.11. Third Party Debt........................ 33
SECTION 8.12. Securities Law Compliance............... 33
SECTION 8.13. CC/USA Shareholders' Representative..... 33
<PAGE>
ARTICLE IX.
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY............................. 34
SECTION 9.1. Representations and Warranties;
Performance............................. 34
SECTION 9.2. Authorizations, Approvals and Consents.. 34
SECTION 9.3. No Proceeding or Litigation............. 34
SECTION 9.4. Adverse Change.......................... 34
SECTION 9.5. Corporate Action........................ 35
SECTION 9.6. Other Documents......................... 35
SECTION 9.7. Employment Letters...................... 35
SECTION 9.8. Incentive Stock Options................. 35
SECTION 9.9. Opinion................................. 35
SECTION 9.10. Resale Registration Statement........... 35
ARTICLE X.
-iii-
CLOSING.................................................................. 35
SECTION 10.1. Closing................................ 35
SECTION 10.2. Delivery of Documents by the Company... 35
SECTION 10.3. Delivery of Documents by the Parent.... 36
SECTION 10.4. Filing of Certificate of Merger........ 36
ARTICLE XI.
TERMINATION AND REMEDIES................................................. 36
SECTION 11.1. Methods of Termination.................. 36
SECTION 11.2. Opportunity to Cure..................... 37
SECTION 11.3. Procedure Upon Termination.............. 37
SECTION 11.4. Remedies................................ 38
SECTION 11.5 Right to Specific Performance........... 38
ARTICLE XII.
POST-CLOSING LIABILITY....................................................38
SECTION 12.1. Representations and Warranties of Parent.38
SECTION 12.2. Termination of Company's Representations
and Warranties.......................... 38
ARTICLE XIII.
MISCELLANEOUS PROVISIONS................................................. 39
SECTION 13.1. Amendment and Modification............. 39
SECTION 13.2. Waiver of Compliance, Consents......... 39
SECTION 13.3. Expenses............................... 39
SECTION 13.4. Investigations......................... 39
SECTION 13.5. Headings............................... 39
SECTION 13.6. Notices................................ 39
SECTION 13.7. Assignment..............................40
SECTION 13.8. Governing Law.......................... 40
SECTION 13.9. Counterparts........................... 41
SECTION 13.10. No Third Party Beneficiaries........... 41
SECTION 13.11. Severability........................... 41
SECTION 13.12. Disclaimer Regarding Projections....... 41
SECTION 13.13. Announcements.......................... 41
SECTION 13.14. Entire Agreement....................... 41
<PAGE>
-iv-
EXHIBITS
Exhibit A - Voting Agreement
Exhibit B - Certificate of Merger
Exhibit C - Contingent Payment Agreement
Exhibit D - Contingent Payment Right
Exhibit E-1 - Company's Counsel's Opinion
Exhibit E-2 - Company's Communications Counsel's
Opinion
Exhibit F - Form Employment Letter
Exhibit G - Parent Counsel's Opinion
SCHEDULES
Schedule 3.1 - Subsidiaries
Schedule 3.2 (a) - Shareholders
Schedule 3.2 (b) - Options
Schedule 3.4 - Conflicts/Violations
Schedule 3.5 - Consents
Schedule 3.6 - Financial Statements
Schedule 3.7 - Undisclosed Liabilities
Schedule 3.8 - Absence of Changes
Schedule 3.9 - Owned Real Property
Schedule 3.10 - Leases
Schedule 3.11 - Equipment Leases
Schedule 3.12 - Material Agreements
Schedule 3.13 - Litigation
Schedule 3.14 - Tax Matters
Schedule 3.15 - Compliance with Laws
Schedule 3.16 - Intellectual Property
Schedule 3.17 - ERISA Matters
Schedule 3.17(k) - Certain Plan Matters
Schedule 3.18 - Environmental Compliance
Schedule 3.20 - List of Depositories
Schedule 3.21 - Insurance
Schedule 3.24 (a) - Tariffs
Schedule 3.24 (b) - List of FCC Licenses
Schedule 3.24 (c) - Government Permits
Schedule 3.25 - Transaction with Affiliates
Schedule 3.28 - Regulation D Compliance
Schedule 3.30 - Business Information
Schedule 9.8 - Incentive Stock Options
-v-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is being entered
into as of the 10th day of October, 1996, by and among Citizens Utilities
Company, a Delaware corporation ("Parent"), Citizens Conference Call Company, a
Delaware corporation, 100% of the stock of which is owned by Parent ("Mergeco"),
and Conference-Call USA, Inc., a Delaware corporation ("CC/USA").
R E C I T A L S:
- - - - - - - -
A. CC/USA owns all of the issued and outstanding shares of
capital stock of Dial Services, Ltd., a Delaware corporation ("Dial");
B. CC/USA and Dial are engaged in the business of providing
domestic and international telecommunication and teleconferencing services (the
"Business");
C. Parent desires to acquire all of the issued and outstanding
shares of capital stock of CC/USA in exchange for shares of Series A Common
Stock of Parent upon the terms and subject to the conditions set forth herein;
D. Parent and CC/USA have agreed to accomplish this transaction
through a reverse triangular merger whereby Mergeco will merge with and into
CC/USA, and CC/USA will be the surviving corporation (the "Merger");
E. Each of the Boards of Directors of Parent, CC/USA and Mergeco have
approved this Agreement, and the Board of Directors of CC/USA have directed that
this Agreement be submitted to its shareholders for approval.
F. Certain shareholders of CC/USA who collectively hold in excess of
fifty percent (50%) of the voting shares of CC/USA have entered into a Voting
Agreement, dated as of the date of this Agreement, among the Parent, CC/USA, and
the shareholders of CC/USA named therein (the "Voting Agreement"), pursuant to
which such shareholders have agreed to vote to adopt and approve this Agreement,
the Merger, and the other transactions contemplated by this Agreement. A copy of
such Voting Agreement is attached to this Agreement as Exhibit A.
G. It is intended that the Merger qualify as a reorganization
within the meaning of the appropriate subsection of Section 368(a)(2)(e) of the
Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereby agree as
follows:
<PAGE>
ARTICLE I.I.
DEFINITIONS
-----------
SECTION 1.1. Definitions In addition to the terms defined elsewhere
herein, the following terms have the meanings specified or referred to in this
Section 1.1 and shall be equally applicable to both the singular and
- ------------
plural forms. Any agreement referred to below shall mean such agreement as
amended, supplemented and modified from time to time to the extent permitted by
the applicable provisions thereof and by this Agreement.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under control with such
Person.
"Agreement" means this Agreement, including any exhibits, schedules and
attachments hereto.
"Antitrust Improvements Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
"CC/USA Common Shares" means the outstanding shares of common stock of
CC/USA, $.0001 par value.
"CC/USA Preferred Shares" means the outstanding shares of Series A
Preferred Stock, $.01 par value.
"CC/USA Shareholders" collectively refers, prior to the Closing Date,
to all of the shareholders of CC/USA holding either CC/USA Common Shares or
CC/USA Preferred Shares, and after the Closing Date, to the shareholders who
have tendered their CC/USA Shares for exchange, and does not refer to the
shareholders who exercise their appraisal rights and receive consideration other
than as provided for hereunder.
"CC/USA Shareholders' Representative" means CC/USA Representative,
Inc., a Delaware corporation, who has the authority to act on behalf of all of
the CC/USA Shareholders tendering CC/USA Shares pursuant to this Agreement.
"CC/USA Shares" means collectively, the CC/USA Preferred Shares and the
CC/USA Common Shares.
"CUC Common Shares" means the Series A Common Stock of Parent, $0.25
par value, to be issued pursuant to this Agreement.
2
"CERCLA" means the Comprehensive Environmental Response Compensation
and Liability Act of 1980, as amended, and rules and regulations promulgated
thereunder.
"Closing" means the consummation of the transactions contemplated by
Article II of this Agreement.
"Closing Date" shall be the date upon which the transactions
contemplated by this Agreement are closed as prescribed in Section 11.1.
"Company" collectively refers to CC/USA, together with its wholly-owned
subsidiary, Dial, both prior to and after the Effective Time of the Merger, as
the context requires. CC/USA is sometimes referred to herein as the "Surviving
Corporation."
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any contract, agreement, commitment, undertaking or
arrangement (whether oral or written).
"Encumbrance" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, covenant or other restrictions of any kind, including, any
restrictions on the use, voting, transfer or other attributes of ownership.
"Environmental Law" means all federal, state and local statutes,
regulations and ordinances derived from or relating to or addressing the
environment, health or safety, including but not limited to CERCLA, OSHA and
RCRA and any state equivalent thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
<PAGE>
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory or judicial body.
"Hazardous Substances" means any substance, chemical or waste that is
listed, or contains material amounts of one or more components that are defined,
designated, classified, considered or listed, as hazardous, toxic, radioactive,
or dangerous under any applicable state or federal law; as well as any asbestos
or asbestos-containing material, petroleum, petroleum product or by-product,
crude oil or any fraction thereof, natural gas, natural gas liquids, liquified
natural gas, synthetic gas usable as fuel, or polychlorinated biphenyls
("PCBs").
"Laws" means all foreign, federal, state and local laws, statutes,
rules, regulations, codes and ordinances.
3
"OSHA" means the Occupational Safety and Health Act, as amended, and
the rules and regulations thereunder.
"Permitted Encumbrances" means (a) liens for taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business for
sums not yet due and payable, and (c) other liens or imperfections on property
which do not materially detract from the value of or materially impair the
existing use of the property affected by such lien or imperfection or render
title thereto unmerchantable or uninsurable.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"Prime Rate" means the prime rate of interest as announced in the Wall
Street Journal from time to time.
"RCRA" means the Resource Conservation and Recovery Act, as amended,
and the rules and regulations promulgated thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
<PAGE>
INDEX OF TERMS DEFINED IN OTHER SECTIONS
Accredited Investor 3.28
Accrued Earn-Out Shares 2.4(a)
Accumulated Funding Deficiency 3.17(h)(iii)
Adjusted Consolidated Working Capital 2.8
Affiliate Letters 6.12
Aggregate CUC Conversion Shares 2.4(b)(i)
Agreement First
Paragraph
Business Recitals
CC/USA First
Paragraph
Closing Date 10.1
Contingent Payment Agreement 2.4(a)
Contingent Payment Right 2.4(b)(ii)
Contingent Purchase Price 2.4(a), 3.1
4
Dial Recitals
Disclosure Schedule Update 6.7
Effective Time 2.2
Effective Date 2.2
Employee Benefit Plan 3.17(a)
Exchange Agent 6.10(a)
Excluded Stock 2.4(b)
FCC 3.24(a)
Final Adjustment Certificate 2.8
Financial Statements 3.6
First Midwest 6.1
5
<PAGE>
Fringe Benefits 3.17(a)
GCL 2.1
Initial Adjustment Certificate 2.8
Initial Merger Value 2.4(a)
INS 6.1
Interim Financials 3.6
Mergeco First
Paragraph
Multi-Employer Plan 3.17(f)
Merger Recitals
Order 3.13
Owned Real Property 3.9
Parent First Paragraph
Pension Plan 3.17(b)
Plan(s) 3.17(a)
Qualified Auditor 2.8
Registration Statement 7.1(a)
Reportable Event 3.17(e)
Representatives 6.15
Rule 145 Affiliates 6.12
Surviving Corporation 2.1
Transmittal Letter 2.7
Unaccredited Shareholders 3.28
Voting Agreement Recitals
SECTION 1.2. Knowledge. The term "to the best of the Company's
knowledge," or words to that effect as used herein refer to the actual personal
knowledge of the directors and officers of the Company without independent
investigation.
ARTICLE II.
THE MERGER
----------
SECTION II.1. Merger. Upon and subject to the terms and conditions
------
set forth in this Agreement and in accordance with the Delaware
General Corporation Law, as amended (the "GCL"), Mergeco shall be merged with
and into CC/USA. Following the Merger, CC/USA shall continue to exist as the
surviving corporation (sometimes referred to as the "Surviving Corporation") and
the separate corporate existence of Mergeco shall cease.
6
<PAGE>
SECTION II.2. Filing and Effective Time.
-------------------------
At the Closing, Mergeco and CC/USA shall file with the Secretary of State of the
State of Delaware the Certificate of Merger, in the form attached hereto as
Exhibit B, appropriately completed and executed in accordance with Section 251
of the GCL. The Merger shall become effective upon filing of the Certificate of
Merger (the "Effective Time," and the date thereof hereinafter referred to as
the "Effective Date").
SECTION II.3. Effects of the Merger. The Merger shall have the
----------------------
effects set forth in Section 259 of the GCL. In addition:
(a) The Certificate of Incorporation of CC/USA as in effect at the
Effective Time shall be and constitute the Certificate of Incorporation of the
Surviving Corporation until amended or changed in accordance with applicable
law;
(b) The Bylaws of CC/USA as in effect at the Effective Time shall be
and constitute the Bylaws of the Surviving Corporation until amended or changed
in accordance with applicable law; and
(c) The officers and directors of Mergeco immediately prior to the
Effective Time shall become the officers and directors of the Surviving
Corporation.
SECTION II.4. Purchase Price; Conversion Formula.
----------------------------------
(a) In exchange for all of the CC/USA Shares, the CC/USA Shareholders
shall receive in the aggregate CUC Common Shares equal to FIFTEEN MILLION FIVE
HUNDRED THOUSAND DOLLARS ($15,500,000) (the "Initial Merger Value"), subject to
adjustment as provided in Section 2.8 and Section 2.9. In further consideration
of their CC/USA Shares, the CC/USA Shareholders shall receive up to an aggregate
additional amount of SEVENTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($17,500,000) (the "Contingent Purchase Price") to accrue to the CC/USA
Shareholders in the form of CUC Common Shares. The manner in which the
Contingent Purchase Price shall accrue and be payable to the CC/USA Shareholders
is set forth in the Contingent Payment Agreement, a form of which is attached
hereto as Exhibit C (the "Contingent Payment Agreement"), which will be executed
and delivered by the parties thereto at Closing. The aggregate number of CUC
Common Shares deliverable to the CC/USA Shareholders in payment of the
Contingent Purchase Price, as determined under the Contingent Payment Agreement,
are herein referred to as the "Accrued Earn-Out Shares."
(b) At the Effective Time, each CC/USA Share (other than those CC/USA
Shares held by any of the CC/USA Shareholders who properly exercise any
appraisal rights available under applicable law (the "Excluded Stock")), at and
as of the Effective Time, by virtue of the Merger and without any further action
on the part of the holder thereof, shall be converted into a
F-7
<PAGE>
number of shares of CUC Common Shares and a right to receive Accrued Earn-Out
Shares as follows:
(i) Each CC/USA Share (other than Excluded Stock) shall be
converted into a number of CUC Common Shares equal to the quotient
obtained by dividing (x) the Aggregate CUC Conversion Shares (as
defined below) by (y) the number of CC/USA Shares (other than Excluded
Stocks) outstanding on the Effective Date. The "Aggregate CUC
Conversion Shares" shall equal the quotient obtained by dividing the
Initial Merger Value (as adjusted pursuant to Sections 2.8 and 2.9) by
$12.125.
(ii) Each CC/USA Shareholder (other than holders of Excluded
Stock) shall receive a right in the form of Exhibit D (the "Contingent
Payment Right") to receive that number of Accrued Earn-Out Shares equal
to the product obtained by multiplying (x) the aggregate number of
Accrued Earn-Out Shares by (y) the quotient obtained by dividing (AA)
the aggregate number of CC/USA Shares held by such CC/USA Shareholder
on the Effective Date by (BB) the number of CC/USA Shares (less the
number of shares of Excluded Stock) outstanding on the Effective Date.
SECTION II.5. Conversion of Mergeco Shares. At and as of the Effective
-----------------------------
Time, by virtue of the Merger and without any further action on the part of
Parent, each share of common stock of Mergeco issued and outstanding to Parent
immediately prior to the Effective Time shall by virtue of the Merger be
converted into one share of common stock of the Surviving Corporation.
SECTION II.6. Dissenters' Rights.
-----------
Notwithstanding anything in this Agreement to the contrary, any CC/USA
Shareholder who delivers to CC/USA a written demand for appraisal of his CC/USA
Shares in the manner provided in Section 262 of the GCL and who is otherwise in
compliance with Section 262 of the GCL shall be entitled to an appraisal of the
fair value of his CC/USA Shares and payment of such value together with interest
thereon, if any, under the GCL and shall not be entitled to exercise his right
to receive the consideration provided for in Section 2.4. If such Shareholder
shall have failed to perfect or shall have effectively withdrawn or lost his
right to appraisal and payment under the GCL, as the case may be, such CC/USA
Shareholder shall thereupon become entitled to exercise his right to receive the
consideration provided for in Section 2.4 without any interest thereon.
F-8
<PAGE>
SECTION II.7. Exchange of Certificates; Payment of Merger
- -------------------------------------------------------------------------------
Consideration; On or as soon as practicable after the approval of the Merger
- --------------
by the CC/USA Shareholders, CC/USA shall assist the CC/USA Shareholders to
surrender to the Exchange Agent their stock certificates representing their
CC/USA Shares, together with a transmittal letter in form reasonably
acceptable to Parent (the "Transmittal Letter"). At the Effective Time, the
Exchange Agent, on behalf of the Surviving Corporation, shall cancel such
duly tendered stock certificates, and the Exchange Agent, on behalf of the
Parent, shall promptly issue, in accordance with the directions set forth
in the Transmittal Letter, a certificate representing the CUC Common
Shares into which any CC/USA Shares previously represented by such
surrendered certificate shall have been converted at the Effective Time,
together with a Contingent Payment Right into which any CC/USA Shares
previously represented by such surrendered certificate shall have been
converted at the Effective Time. Until so surrendered, each outstanding CC/USA
stock certificate shall, at and after the Effective Time, be deemed for all
purposes to represent and evidence only the right to receive the per share
consideration set forth in Section 2.4, for each share represented by such
certificate, and no interest shall be paid or accrued on such amount.
SECTION II.8. Adjusted Consolidated Working Capital Adjustment.
----------------------------------------------------
The Initial Merger Value shall be increased to the extent Adjusted Consolidated
Working Capital (as hereinafter defined) is greater than ($2,384,646), and shall
be reduced to the extent Adjusted Consolidated Working Capital is less than
($2,384,646). For purposes of this Section 2.8, "Adjusted Consolidated Working
Capital" means the amount obtained by subtracting (x) the sum of (i) the current
liabilities of the Company on a consolidated basis plus (ii) the non-current
liabilities of the Company on a consolidated basis, each as of the Closing Date,
from (y) the current assets of the Company on a consolidated basis as of the
Closing Date. All such amounts shall be determined in accordance with generally
accepted accounting practices, except as follows: (1) accounts receivable shall
be net of accounts receivable over 90 days old as of the Closing Date; (2) any
commission payable by the Company as a result of the consummation of the Merger,
and any other expenses of the Company arising from or relating to the sale of
the Company that are outstanding as of the Effective Time and which are
addressed by paragraph 5 of Exhibit C to the Contingent Payment Agreement, shall
be included as a current liability of the Company as of the Closing Date; and
(3) no adjustment shall be made for deferred taxes as of the Closing Date.
Adjusted Consolidated Working Capital shall be estimated in good faith by the
Company and set forth, together with a detailed statement of the calculation
thereof, in a certificate (the "Initial Adjustment Certificate") to be delivered
to the Parent not later than 5 business days prior to the Closing Date. The
Initial Adjustment Certificate shall constitute the basis on which the Initial
Merger Value shall be calculated. On or before ninety (90) days after the
Closing Date, the Parent shall deliver to the CC/USA Shareholders'
Representative a final calculation of the Adjusted Consolidated Working Capital,
together with such supporting documentation as the CC/USA Shareholders'
Representative may reasonably request, in a certificate (the "Final Adjustment
Certificate"), which shall evidence in reasonable detail the nature and extent
of any variances between the amounts estimated in the Initial Adjustment
Certificate and the amounts set
F-9
<PAGE>
forth in the Final Adjustment Certificate. The CC/USA Shareholders'
Representative shall review the Final Adjustment Certificate and shall give
written notice to the Parent of any objections to the calculation shown in such
certificate within 10 business days after its receipt thereof. The Parent and
the CC/USA Shareholders' Representative shall endeavor in good faith to resolve
any objections within 30 days after the receipt by the Parent of such
objections. If the objection or dispute has not been resolved at the end of such
30 day period, the disputed portion shall be determined within the following 45
days by a partner in a major independent accounting firm that is not the auditor
of the Parent or any affiliate of the Parent or of the CC/USA Shareholders'
Representative or any affiliate thereof ("Qualified Auditor") and a
determination of such Qualified Auditor shall be final and binding upon the
parties. The Parent and the CC/USA Shareholders' Representative shall bear
equally the expenses arising in connection with such determination by the
Qualified Auditor. If Adjusted Consolidated Working Capital as set forth in the
Final Adjustment Certificate, as finalized by the parties or by the Qualified
Auditor, is greater than the Adjusted Consolidated Working Capital as estimated
in the Initial Adjustment Certificate, then the Parent shall issue additional
CUC Common Shares to the CC/USA Shareholders' Representative in a number equal
to such difference divided by $12.125. If the Adjusted Consolidated Working
Capital as set forth in the Final Adjustment Certificate, as finalized by the
parties or by the Qualified Auditor, is less than the Adjusted Consolidated
Working Capital estimated in the Initial Adjustment Certificate, then the number
of Accrued Earn-Out Shares first issuable in accordance with the Contingent
Payment Agreement shall be reduced by the number obtained by dividing such
difference by $12.125.
F-10
<PAGE>
SECTION II.9. Appraisal Right Adjustment. The Initial Merger Value
----------------------------
shall be reduced by an amount equal to $15,500,000 (subject to adjustment
pursuant to Section 2.8) multiplied by the percentage of Excluded Stock as to
the total of all of the CC/USA Shares.
SECTION 2.10. No Fractional Shares. No fractional CUC Common Share
----------------------
shall be issued in the Merger. Each CC/USA Shareholder shall be entitled to
received in lieu of any fractional CUC Common Share to which such holder
otherwise would have been entitled pursuant to Section 2.4(b)(i) hereof (after
taking into account all CC/USA Shares then held of record by such holder) cash
payable by check in lieu of any such fractional CUC Common Share computed on the
basis of the closing price of a CUC Common Share as reported in the New York
Stock Exchange section of The Wall Street Journal on the third trading day
immediately preceding the Closing Date. The Parent shall deliver to the Exchange
Agent cash in an amount sufficient to make the payments in lieu of fractional
shares as described above.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
As an inducement to Parent to enter into this Agreement and to
consummate the transactions contemplated hereby, the Company represents and
warrants to the Parent, as follows:
SECTION III.1. Organization and Authority of CC/USA and Dial.
----------------------------------------------
(a) CC/USA is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Dial is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each of CC/USA and Dial has full corporate power and
authority to carry on its respective business as presently conducted. Each of
CC/USA and Dial has been duly qualified as a foreign corporation for the
transaction of business in, and is in good standing under the laws of, each
jurisdiction in which it owns or leases property or conducts any business so as
to require such qualification, except where the failure to so qualify would not
have a material adverse effect upon its business or financial condition,
properties or operations. Except as shown on Schedule 3.1, neither CC/USA nor
Dial owns or controls or has owned or controlled, or has or has had any equity
investment in, directly or indirectly, any Person.
(b) CC/USA has full corporate power and authority to enter into this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement by CC/USA and the performance of the transactions herein
contemplated have been duly authorized by the Board of Directors of CC/USA and
will be submitted to the CC/USA Shareholders for their approval and, subject to
the CC/USA Shareholders' approval, no further corporate action on the part of
CC/USA is necessary to authorize this Agreement and the performance of the
transactions
F-11
<PAGE>
contemplated hereby. The affirmative votes or action by written
consent of a majority of the holders of CC/USA Common Shares are the only votes
of any class or series of capital stock of CC/USA necessary to approve the
Merger and the transactions contemplated hereby under applicable law and
CC/USA's Certificate of Incorporation and By-Laws, except the affirmative votes
or action by a majority of the holders of the CC/USA Preferred Shares are
necessary to approve the amendment to CC/USA's Certificate of Incorporation
contemplated by Section 6.11. This Agreement has been duly executed and
delivered by CC/USA and constitutes the legal valid and binding obligation of
CC/USA enforceable against it in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
SECTION III.2. Capitalization. (a) The authorized capital stock of
---------------
CC/USA consists of (i) 500,000 shares of Common Stock, with a par value of
$.0001 per share, of which 106,583.335 shares are duly authorized, validly
issued and outstanding and fully paid and non-assessable, and (ii) 50,000 shares
of preferred stock, with a par value of $.01 per share, of which 13,636 shares
have been designated as the Series A Preferred Stock, of which 6,050 shares are
duly authorized, validly issued and outstanding, and fully paid and
non-assessable. Schedule 3.2(a) contains a true and complete list of the record
holders of the CC/USA Shares and sets forth the full name, state of residence,
mailing address and number of CC/USA Shares owned by each. The authorized
capital stock of Dial consists of 500,000 shares of Common A, Voting Stock, with
a par value of $.01 per share, of which 100,000 shares are duly authorized,
validly issued and outstanding and fully paid and non-assessable, all of which
are owned beneficially and of record by CC/USA, free and clear of any
Encumbrances, options contracts, preemptive rights or equities, and 50,000
shares of Common B, Non-Voting Stock, with a par value of .01 per share, of
which no shares are issued and outstanding.
(b) Except as set forth on Schedule 3.2(b), neither CC/USA or Dial has
outstanding (i) any subscription, option, put, call, warrant or other right or
commitment to issue, nor any obligation or commitment to redeem or purchase, any
of its authorized capital stock, or (ii) any securities convertible into or
exchangeable for any of its authorized capital stock. Except as set forth on
Schedule 3.2(b), there are no shares of capital stock held in the treasury of
CC/USA or Dial and no shares of capital stock have been issued in violation of,
or are subject to, any preemptive rights or subscription agreements. Except for
the Voting Agreement to which the Parent is a party and except as set forth on
Schedule 3.2(b), to the best knowledge of the Company, there are no shareholder
agreements, voting agreements, voting trusts or any such other similar
arrangements which have the effect of restricting or limited the transfer,
voting or other rights associated with the capital stock of the Company.
SECTION III.3. Corporate Organizational Documents. Copies of (i)
------------------------------------
the charter of CC/USA and Dial, certified by the Secretary of State of Delaware,
and (ii) the Bylaws of CC/USA and Dial, certified by their respective corporate
secretaries, which have been made
F-12
<PAGE>
available to Parent, are true and complete
copies of such instruments, as amended to date, and are in full force and effect
on the date hereof.
SECTION III.4. No Conflict.
. ------------
(a) Except as set forth on Schedule 3.4, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated herein by the Company, will (i) violate or conflict with any of the
provisions of any of the charters or By-Laws of CC/USA or Dial, (ii) violate or
constitute a default, an event of default or an event creating rights of
acceleration, termination, cancellation or other additional rights, or loss of
rights under, any mortgage, indenture, deed of trust, lease, contract,
agreement, license or other instrument or any order, judgment or ruling of any
Governmental Body to which CC/USA or Dial is a party, or by which any of their
assets or property is bound, or (iii) result in the creation of any Encumbrances
upon any of the assets or property of the Company except for violations or
defaults which do not have a material adverse financial impact on the Company.
<PAGE>
SECTION III.5. Consents. Other than approval by the CC/USA
---------
Shareholders, and except as set forth on Schedule 3.5, no consent, approval or
authorization of, or declaration, filing or registration with, any Person is
required to be obtained, made or given by the Company in connection with the
execution, delivery and performance of this Agreement.
SECTION III.6. Financial Statements. The Company has heretofore
----------------------
delivered to the Parent correct and complete copies of the audited consolidated
financial statements of the Company for the year ended December 31, 1995 (the
"Financial Statements") and the unaudited consolidated balance sheet of the
Company as of June 30, 1996 and the unaudited consolidating statement of
revenues and earnings of the Company for the period ended June 30, 1996 (the
"Interim Financials"). True and complete copies of the Financial Statements and
the Interim Financials are attached as Schedule 3.6 hereto. The Financial
Statements and the Interim Financials have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except,
in the case of the Financial Statements, as otherwise disclosed in the notes to
such Financial Statements, and in the case of the Interim Financials, to normal
year-end adjustments) throughout the periods involved. The Financial Statements
and the Interim Financials are based on the Company's books and records, and
fairly present the financial condition of the Company as of the dates they were
prepared and the results of the operations of the Company for the periods
indicated, subject, in the case of the Interim Financials, to normal year-end
adjustments.
SECTION III.7. No Undisclosed Liabilities, Etc. To the best of the
----------------------------------
Company's knowledge, the Company does not have any liabilities or obligations
(absolute, accrued, contingent or otherwise) which in the aggregate would have a
material adverse effect on the financial condition or results of operations of
the Company, except (a) for liabilities and obligations reflected in the Interim
Financials or (b) for liabilities and obligations incurred in the
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<PAGE>
ordinary course of business since the date of the Interim Financials, none of
which, individually, is material in amount or (c) for liabilities and
obligations disclosed on Schedule 3.7.
SECTION III.8. Absence of Certain Changes. Except as set forth in
-----------------------------
Schedule 3.8, since the date of the Financial Statements, the Company has
operated the Business only in the ordinary course and there has not been:
(a) any material adverse change in the financial condition, results of
operations, liabilities, or assets of the Company, except for material adverse
changes due to general economic or industry-wide conditions, or any other events
or conditions that, in the aggregate, would reasonably be expected to have a
materially adverse effect on the Business or on the financial condition, results
of operations, liabilities, or assets of the Company;
(b) any damage, destruction or loss, not covered by insurance,
which reasonably may be expected to materially and adversely affect the
financial condition or results of operations by the Company;
(c) except in the ordinary course of business, any sale, lease,
mortgage, pledge or Encumbrance of any material properties or assets of the
Company;
(d) any loss of any supplier, distributor or customer which
materially and adversely affects the financial condition or results of
operations of the Company;
(e) any increase by the Company, except as consistent with past
practices, in the wages, salaries, compensation, pension or other benefits
payable to any employee who, as of the date hereof, receives from the Company
annual compensation in excess of $50,000;
(f) any cancellation, release or waiver of debts owed to the Company
which are, individually or in the aggregate, material to the Company, except for
compromises of trade debt in the ordinary course of business;
(g) any declaration or payment of any dividend or distribution to
the CC/USA Shareholders or redemption, purchase or other acquisition of any
capital stock of the CC/USA Shareholders;
(h) any increase in indebtedness for borrowed money, except
current borrowings from banks in the ordinary course of business;
(i) any change in any method of accounting or accounting practice;
or
(j) any agreement, whether or not in writing, to do any of the
foregoing.
F-14
<PAGE>
SECTION III.9. Title to the Real Property. Schedule 3.9
------------------------------
contains a complete and accurate list of all real properties owned by the
Company (the "Owned Real Property"). The Company has good and marketable
indefeasible fee simple title (both legal and equitable) to the Owned Real
Property, free and clear of any Encumbrances, except Permitted Encumbrances and
Encumbrances set forth on Schedule 3.9.
SECTION III.10. Real Property Leases. Schedule 3.10 contains a
----------------------
complete and accurate list of each lease or similar agreement under which (i)
the Company is lessee of, or holds or operates, any real property owned by any
third Person or (ii) the Company is lessor of any of the Owned Real Property.
Except as set forth in such Schedule, the Company has the right to quiet
enjoyment of all the leased real property for the full term of each such lease
or similar agreement relating thereto, and the leasehold or other interest of
the Company is not subject or subordinate to any Encumbrance except for
Permitted Encumbrances. All leases and similar agreements referred to in
Schedule 3.10 are legally binding and in full force and effect, and there exists
no material default thereunder on the part of the Company, or, to the best of
the Company's knowledge, the other party thereto.
SECTION III.11. Title to and Condition of Certain Personal Property.
-----------------------------------------------------
(a) True and correct copies of a fixed asset detail listing of the
Company have been previously made available to Parent, which to the Company's
knowledge, reflects all material assets of the Company. Set forth in Schedule
3.11 is a list of all equipment and fixtures subject to any lease or rental
agreement to which CC/USA or Dial is a party and which requires annual payments
in excess of $10,000 per year. Except for those Encumbrances set forth on
Schedule 3.11, there are no Encumbrances, except Permitted Encumbrances, on any
personal property owned by the Company.
(b) Except as otherwise stated on Schedule 3.11, the machinery,
equipment and other personal property used in the Business, taken as a whole, is
(i) in good operating condition, usable in the ordinary course of business, (ii)
in a state of normal maintenance and repair, (iii) sufficient and adequate to
carry on the Business as now conducted, and (iv) to the best of the Company's
knowledge, complies in all material respects with applicable Laws. EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES SPECIFICALLY PROVIDED IN THIS AGREEMENT, THE
COMPANY MAKE NO REPRESENTATION OR WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE
TANGIBLE PERSONAL PROPERTY OWNED BY THE COMPANY.
SECTION III.12. Material Agreements.
--------------------
F-15
<PAGE>
(a) Schedule 3.12 contains a complete and correct list, as of the
date of this Agreement, of all Contracts of the following types to which CC/USA
or Dial is a party, or by which CC/USA or Dial is bound:
(i) any Contract relating to the future purchase of services,
products, materials or supplies which is not cancelable by CC/USA or
Dial within thirty (30) days without penalty or further obligation, or
has a remaining obligation in excess of $10,000;
(ii) any Contract relating to any obligation for
borrowed money or any guarantee or indemnification of an
obligation for borrowed money or any other obligation or liability;
(iii) any Contract that limits the right of CC/USA or Dial to
compete in any line of business or to compete with any other Person;
(iv) any Contract relating to any outstanding commitment for
capital expenditures in excess of $50,000 for any single project (so
long as all such contracts not disclosed do not exceed $100,000 in the
aggregate for all projects);
(v) any Contract relating to the employment of any Person
which is not terminable at will by CC/USA or Dial;
(vi) any Contract relating to management service, consulting
or any other similar type contract; or
(vii) any Contract relating to licenses to or from CC/USA or
Dial with respect to software or hardware used in the Business.
(b) Except as set forth in Schedule 3.12, and except those Contracts
which by their terms will expire prior to the Closing Date or are otherwise
terminated in accordance with the terms hereof, all the Contracts referred to in
Schedule 3.12, are legally binding and in full force and effect, and there
exists no material default thereunder on the part of any of either CC/USA or
Dial or, to the best of the Company's knowledge, the other party thereto.
(c) Copies of all documents listed in Schedule 3.12 have been
made available to the Parent and such copies are true complete in all respects.
SECTION III.13. Litigation. Except as set forth on Schedule 3.13,
-----------
there is no suit, action, arbitration or other legal, administrative or
governmental investigation or proceeding pending or, to the best of the
Company's knowledge, threatened against CC/USA or Dial, nor is there any
judgment, decree, injunction, rule or order (collectively, "Order") of any
Governmental Body or arbitrator outstanding against the Company.
F-16
<PAGE>
SECTION III.14. Tax Matters. Except as set forth on Schedule 3.14,
------------
to the best of the Company's knowledge, the Company has paid all taxes owed by
it or which it has been obligated to withhold from amounts owing to any
employee, creditor or third party, and the Company has not waived any statute of
limitations with respect to taxes or agreed to any extension of time with
respect to a tax assessment or deficiency, and the Company has not received any
requests for any such waiver or extension. The Company has no knowledge of any
pending or proposed audit of any of its tax returns. Except as set forth on
Schedule 3.14, the Company has (i) duly filed with the appropriate governmental
authorities all tax returns required to be filed by them for all periods ended
on or prior to the date hereof, and such tax returns are true, correct and
complete in all material respects, and (ii) duly paid in full or made adequate
provision for the payment of all taxes for all periods ended on or prior to the
date hereof. Except as set forth on Schedule 3.14, the liabilities and reserves
for taxes reflected in the Company's balance sheet as of June 30, 1996 contained
in the Interim Financials are adequate to cover all taxes for any period ended
on or prior to June 30, 1996. There are no liens for taxes upon any property or
asset of the Company except liens for Taxes not yet due. The Company has not
received any notice of deficiency, proposed deficiency or assessment from any
governmental taxing authority with respect to taxes of the Company. The Company
(i) is not a party to any tax allocation or sharing agreement or (ii) has never
been (or has any liability for unpaid tax because it was) a member of an
affiliated group during any part of any consolidated return year within any part
of which consolidated return year any corporation other than CC/USA and Dial
also was a member of the affiliated group. The Company has not, with regard to
any assets or property held, acquired or to be acquired by any of them, filed a
consent to the application of Section 341(f) of the Code or any comparable
state, local or foreign tax provision.
SECTION III.15. Compliance with Law. Except as set forth on Schedule
---------------------
3.15, to the best of the Company's knowledge, the Company has not failed or is
not failing to comply with any Law or Order which would individually or in the
aggregate have a material adverse effect on the financial condition or results
of operation of the Business. CC/USA and Dial have all governmental permits and
authorizations necessary to entitle them to own and operate their properties and
to conduct their business operations, except wherein the failure to comply
therewith or to have such permits and authorizations would not have a material
adverse effect on the financial condition or results of operation of the
Business.
SECTION III.16. Trademarks and Patents.
-----------------------
(a) All U.S. and foreign trademarks, and applications therefor, trade
names and patents and applications therefor owned by the Company and all
licenses or agreements under which the Company has granted or received the right
to use any of the foregoing are listed in Schedule 3.16(a).
F-17
<PAGE>
(b) Other than as set forth in Schedule 3.16(b), no proceedings have
been instituted or are pending or, to the best of the Company's knowledge,
threatened which challenge the validity of or otherwise adversely affect the
ownership or use by the Company of such trademarks, trade names, patents and
applications. Except as set forth in Schedule 3.16(b), the Company has no
knowledge of the infringing use of any of such trademarks and trade names or the
infringement of any of such patents by any other Person. The Company owns (or
possesses adequate and enforceable licenses or other rights to use) all
trademarks, trade names, patents, inventions, processes and other technical
know-how and other proprietary rights now used in the conduct of the Business
and has not received any notice of conflict with the asserted rights of any
Person.
SECTION III.17. Benefit Plans of the Company.
-----------------------------
(a) Except as set forth in Schedule 3.17, the Company is not a party to
(i) any "employee benefit plan" within the meaning of Section 3(3) of ERISA,
(ii) any profit sharing, pension, deferred compensation, bonus, stock option,
stock purchase, disability, severance, health, welfare or incentive plan or
agreement, or (iii) any written plan or policy providing for "fringe benefits"
to its employees, including but not limited to vacation, paid holidays, personal
leave, employee discount, educational benefit or similar programs, (individually
a "Plan", and collectively the "Plans"). The Company has no intent or commitment
to create any additional Plan or amend any Plan so as to increase benefits
thereunder except in the ordinary course of business consistent with past
practice.
(b) Each Plan is in substantial compliance with all reporting,
disclosure and other requirements of ERISA applicable to such Plan and a
current, accurate and complete copy of each such Plan has been made available to
the Parent.
(c) Each Plan which is an employee pension benefit plan (a "Pension
Plan"), as defined in Section 3(2) of ERISA, and which is intended to be
qualified under Section 401(a) of the Code, has been determined by the Internal
Revenue Service to be so qualified.
(d) To the best of the Company's knowledge, neither any Plan nor the
Company has been or are presently engaged in any prohibited transactions as
defined by Section 406 of ERISA or Section 4975 of the Code for which an
exemption is not applicable which could subject the Company to the tax or
penalty imposed by Section 4975 of the Code or Section 502 of ERISA.
(e) There is no event or condition existing which could be deemed a
"reportable event" (within the meaning of Section 4043 of ERISA) with respect to
which the thirty-day notice requirement has not been waived; no condition exists
which could subject the Parent or the Company to a penalty under Section 4071 of
ERISA.
(f) The Company is not a party to any "multi-employer plan", as
that term is defined in Section 3(37) of ERISA.
F-18
<PAGE>
(g) The Parent has been provided with a true and correct copy of Form
5500 and any attached schedules with respect to the last three plan years for
each Plan and a true and correct copy of the most recent determination letter
issued by the Internal Revenue Service for each Pension Plan.
(h) With respect to each Plan, there are no actions, suits or claims
(other than routine claims for benefits in the ordinary course) pending or to
the Company's best knowledge, threatened against the Company.
(i) With respect to each welfare benefit plan to which the Company is a
party which constitutes a group health plan subject to Section 4980B of the
Code, each such Plan complies, and in each case has materially complied, with
all applicable requirements of Section 4980B of the Code.
<PAGE>
(j) Except as set forth in Schedule 3.17,
(i) there is no outstanding liability (except for
premiums due) under Title IV of ERISA with respect
to any Plan;
(ii) neither the Pension Benefit Guaranty Corporation nor
the Company has instituted proceedings to terminate
any Plan;
(iii) full payment has been made of all amounts which the
Company required to have paid as a contribution to the Plans as of the
last day of the most recent fiscal year of each of the Plans ended
prior to the date of this Agreement, and none of the Plans has incurred
any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as of the
last day of the most recent fiscal year of each such Plan ended prior
to the date of this Agreement;
(iv) the value of a termination basis of accrued benefits
under each of the Plans which is subject to Title IV of ERISA, based
upon the actuarial assumptions used for funding purposes in the most
recent actuarial report prepared by such Plans' actuary with respect to
each such Plan, did not, as of its latest valuation date, exceed the
then current value of the assets of such Plan;
(v) each of the Plans is, and its administration is and has
been during the six-year period preceding the date of this Agreement in
substantial compliance with, and the Company has not received any claim
or notice that any such Plan is not in compliance with, all applicable
laws and orders and prohibited transaction exemptions, including
without limitation, to the extent applicable, the requirements of
ERISA;
F-19
<PAGE>
(vi) the Company's not in default in performing any of its
contractual obligations under any of the Plans or
any related trust agreement or insurance contract; and
(vii) there are no material outstanding liabilities of any
Plan other than liabilities for benefits to be paid to participants in
such Plan and their beneficiaries in accordance with the terms of such
Plan.
(k) Except as set forth in Schedule 3.17(k) hereto, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby constitutes a change in control or accelerates
benefits under any Plan.
SECTION III.18. Environmental and Health/Safety Matters. Except as
----------------------------------------
set forth in Schedule 3.18:
-------------
(a) To the best of the Company's knowledge, the operation of the
Business is and has at all times been in compliance in all material respects
with all applicable Environmental Laws;
(b) To the best of the Company's knowledge, the Company has in all
material respects obtained, maintained and complied with all environmental
permits required for the operation of the Business and such permits will
continue to remain in effect without any change to their respective terms and
conditions after the Effective Time;
(c) No Hazardous Substances have been generated, transported, stored,
treated, recycled or otherwise handled in any way in the operation of the
Business, except for inventories of raw materials and supplies used or to be
used in the ordinary and normal course of operating the Business (all of which
were or are stored in all material respects in accordance with applicable
Environmental Laws);
(d) There are no locations not owned or operated by the Company where
Hazardous Substances associated with the operation of the Business have been
stored, treated, recycled or disposed of, except for inventories of raw
materials and supplies used or to be used in the ordinary and normal course of
operating the Business (all of which were or are stored in all material respects
in accordance with applicable Environmental Laws);
(e) No Hazardous Substances are located on, contained in or otherwise
form a part of the assets or properties of the Company, except for inventories
of raw materials and supplies used or to be used in the ordinary and normal
course of operating the Business (all of which were or are stored in all
material respects in accordance with applicable Environmental Laws);
(f) There is no past or ongoing release of Hazardous Substances from
any of the Owned Real Properties or, to the best of the Company's knowledge,
from properties formerly
F-20
<PAGE>
owned or operated by the Company or from other locations where Hazardous
Substances associated with the operation of the Business have been or are
located except for federally permitted releases (as that term is defined in
CERCLA) associated with the operation of the Business;
(g) To the best of the Company's knowledge, there is no information
indicating that any Person may have impaired health as the result of the
operation of the Business or the ownership or use of any assets or properties of
the Company or as the result of the release of Hazardous Substances from such
assets or properties;
(h) The Company has not treated, stored for more than ninety (90) days,
or disposed of any hazardous waste, as such term is used within the meaning of
the RCRA or similar applicable state or municipal Law;
(i) The Company has not received any notice from any Governmental Body
or other Person advising that it is potentially responsible for response costs
with respect to a release or threatened release of Hazardous Substances;
(j) No underground storage tanks are or, to the best of the
Company's knowledge, ever were located on any properties owned or leased by it;
(k) No Order, litigation, settlement or citation with respect to
Hazardous Substances exists with respect to the Company or in connection with
the operation of the Business;
(l) To the best of the Company's knowledge, there has been no
environmental investigation conducted by any Governmental Body with respect to
the Company or in connection with the operation of the Business nor is any such
investigation pending; and
(m) There are no PCBs which are located on, contained in or
otherwise form a part of any of the assets or properties of the Company.
SECTION III.19. Corporate Records. The stock certificates, transfer
------------------
books and minute books of CC/USA and Dial have been made available to the
Parent, are true and complete and constitute all of the stock certificates,
transfer books and minute books thereof.
SECTION III.20. Depositories. Schedule 3.20 contains a complete
------------- --------------
list of the name of each bank in which the Company has an account and the names
of all persons authorized to draw thereon.
SECTION III.21. Insurance. All material insurance policies or
---------
binders insuring the property, assets or business liabilities of the Company are
listed in Schedule 3.21 and are in effect and will be in effect, or replacement
policies will be in effect, on the Closing Date.
F-21
<PAGE>
SECTION III.22. True and Complete Copies. All copies of agreements,
-------------------------
written contracts and documents delivered and to be delivered hereunder by the
Company are and will be true and complete copies of such agreements, contracts
and documents.
SECTION III.23. Brokerage. Except for Mitchell Bodian, the Company
---------
has not retained or incurred any obligation to any investment banker, broker or
finder in connection with the transactions contemplated by this Agreement. The
commission of Mitchell Bodian shall be paid by the Company.
SECTION III.24. Tariffs: FCC Licenses, Non-FCC Authorizations.
-----------------------------------------------
(a) With respect to federal tariffs, the Company has on file with the
Federal Communications Commission (the "FCC") and in effect all tariffs required
for its provision of interstate and foreign telecommunications service. Except
as described on Schedule 3.24(a), the federal and state regulatory tariffs
applicable to the Business stand in full force and effect on the date of this
Agreement in accordance with all terms of such tariffs, and there is no
outstanding notice of suspension, cancellation or termination or, to the
Company's knowledge, any threatened suspension, cancellation or termination in
connection therewith, nor is the Company subject to any restrictions or
conditions applicable to its tariffs that limit or would limit the operation of
the Business (other than restrictions or conditions generally applicable to
tariffs of that type). Except as described on Schedule 3.24(a), each tariff has
been duly and validly approved by the appropriate regulatory agency, and is in
effect. Except as otherwise disclosed on Schedule 3.24(a), the Company is not in
material violation under the terms and conditions of any such tariff, and there
is no basis for any claim of material violation by the Company in any material
respect under any such tariff. Except as described in Schedule 3.24(a), there
are no applications by the Company or complaints or petitions by others or
proceedings pending or threatened before any regulatory authority relating to
the Business, its operations, the Company's tariffs or any of its services
provided pursuant to such tariffs. To the knowledge of the Company, there are no
material violations by subscribers or others under any such tariff that would be
material to the Business. A true and correct copy of each tariff applicable to
the Business has been delivered to the Parent.
(b) Listed on Schedule 3.24(b) are the FCC licenses and other
authorizations held by the Company and used in the operation of the Business.
Each such FCC license or authorization is in full force and effect in accordance
with its terms, and there is no outstanding notice of suspension, cancellation,
termination or revocation in connection therewith nor are any of such FCC
licenses or authorizations subject to any restrictions or conditions that limit
the operation of the Business (other than restrictions or conditions generally
applicable to licenses or authorizations of that type). Subject to the
Communications Act of 1934, as amended, and the regulations thereunder, the FCC
licenses and other authorizations are free from all security interests, liens,
claims, or encumbrances of any nature whatsoever. Except as set forth on
F-22
<PAGE>
Schedule 3.24(b), there are no applications by the Company or material
complaints or material petitions by others or proceedings pending or threatened
before the FCC relating to the Business or the FCC licenses and other
authorizations.
(c) Listed on Schedule 3.24(c) are all non-FCC governmental
authorizations materially necessary for the conduct of the Business. Each such
non-FCC governmental authorization is in full force and effect in accordance
with its terms. To the Company's knowledge, no event has occurred with respect
to any materially necessary non-FCC governmental authorization which permits, or
after notice or lapse of time or both would permit, revocation or termination
thereof, or would result in any other material impairment of the rights of the
holder of such materially necessary non-FCC governmental authorization.
SECTION III.25. Transactions with Affiliates. Except as set forth
-------------------------------
in Schedule 3.25, there is no lease, sublease, indebtedness, contract,
agreement, commitment, understanding, or other arrangement of any kind entered
into by CC/USA or Dial with any officer, director or shareholder of CC/USA or
Dial, as appropriate, or any affiliate of any of them, or any agreements between
CC/USA and Dial, except in each case, for (a) management fees and other
compensation paid to directors and officers consistent with previously
established policies (including normal merit increases in such compensation in
the ordinary course of business); and (b) reimbursements of ordinary and
necessary expenses incurred in connection with their employment, and amounts
paid pursuant to employee benefits plans.
SECTION III.26. Labor Matters. Neither CC/USA nor Dial is a party to,
--------------
otherwise bound by or subject to any liability in connection with any collective
bargaining agreement. No strike, slowdown, picketing or work stoppage by any
union or other group of employees against CC/USA nor Dial or their respective
assets or properties whenever located, secondary boycott with respect to its
products, lockout by any of them of any of their respective employees or any
other labor trouble or other occurrence, event or condition of a similar
character has occurred or, to the Company's knowledge, has been threatened
affecting the Company.
SECTION III.27. Full Disclosure. No statement by the Company
----------------
contained in this Article III and the Schedules thereto or any written statement
or certificate furnished to Parent as of its respective date contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not materially and
adversely misleading in light of the circumstances under which they were made.
The Company makes no representation or warranty as to the general business and
economic condition of the telecommunication industry or, as provided in Section
13.12, certain projections and other forecasts.
SECTION III.28. Regulation D Compliance.
------------------------
(a) To its knowledge:
F-23
<PAGE>
(1) the number of Persons who will receive CUC Common Shares
pursuant to the Merger is eighty-two (82). Schedule 3.28 sets forth a
true and complete list of such Persons, together with their residential
addresses, the approximate percentage of the CUC Common Shares issuable
at the Effective Time which each such Person may be entitled to receive
(assuming no dissenters and full exercise or conversion of CC/USA stock
options and convertible securities), a description of any
relationship(s) between any such Persons, and a statement of whether
such Person has completed a Purchaser Preliminary Questionnaire in the
form required by the Parent and, if so, whether such Person is an
Unaccredited Shareholder as hereinafter defined;
(2) based solely upon the representations made by Persons
listed in Schedule 3.28 who have returned properly completed Purchaser
Preliminary Questionnaires, (x) the number of Persons who will receive
CUC Common Shares pursuant to the Merger (i) who are not "accredited
investors" as such term is defined in Rule 501(a) promulgated by the
SEC pursuant to the Securities Act or (ii) who are otherwise required
to be included in a calculation of number of purchasers pursuant to
Rule 501(e) promulgated by the SEC pursuant to the Securities Act for
purposes of determining the availability of Rule 506 promulgated by the
SEC pursuant to the Securities Act to Parent for the offer and sale by
Parent of the Parent securities contemplated by this Agreement
(collectively, "Unaccredited Shareholders") are no more than
thirty-five (35) (such number to be calculated in accordance with said
Rule 501) and (y) each Unaccredited Shareholder who has returned a
properly completed Purchaser Preliminary Questionnaire, either alone or
with his purchaser representative(s), has such knowledge and experience
in financial and business matters that he is capable of evaluating the
merits and risks of the prospective investment in CUC Common Shares.
Nothing has come to the attention of the Company that any of the
representations made in any Purchaser Preliminary Questionnaire is
untrue.
(b) Based on the personal knowledge of one or more of its executive
officers or directors and on the good faith inquiries made by such
individual(s), the Company reasonably believes that each Unaccredited
Shareholder that has not returned a properly completed Purchaser Preliminary
Questionnaire, either alone or with his purchaser representative(s), has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of the prospective investment in CUC Common
Shares.
(c) The Company acknowledges that Parent is relying upon this
representation and warranty in entering into this Agreement, which includes
Parent's plan for, and Parent's covenants with respect to, Parent's compliance
with the Securities Act in connection with the offer and sale by Parent of the
Parent securities to be made pursuant to this Agreement and any voting or other
related agreement.
F-24
<PAGE>
SECTION III.29. Antitrust Law Compliance. The "ultimate parent
---------------------------
entity" (as defined in 16 C.F.R. '801.11 (1992)) of the Company and entities
that such ultimate parent entity controls directly or indirectly do not have, in
the aggregate, "total assets" (as defined in 16 C.F.R. '801.11(1992)) of
$10,000,000 or more.
SECTION III.30. Business Information. Except as disclosed in
---------------------
Schedule 3.30,
- --------------
(a) the Company is providing international telecommunications
service between the United States and foreign points exclusively by the resale
of tariffed switched services of U.S. facilities-based underlying carriers;
(b) neither CC/USA nor Dial provides international telecommunications
service between the United States and foreign points by use of international
private lines which are interconnected with the public switched
telecommunications networks of any country;
(c) neither CC/USA nor Dial has entered into operating agreements with
any foreign Person for the provision of telecommunications service between the
United States and any foreign point;
(d) CC/USA and Dial are collecting from their customers and remitting
to the United States the federal excise tax on telephone service required by
Section 4252 of the Code on all services that are subject to said federal excise
tax; and
(e) neither CC/USA nor Dial is providing services through the use
of prepaid calling cards.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE PARENT
--------------------------------------------
As an inducement to the Company to enter into this Agreement and to
consummate the transactions contemplated hereby, the Parent hereby represents
and warrants to the Company as follows:
F-25
<PAGE>
SECTION IV.1. Organization and Authority. The Parent is a
----------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to enter
into this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement by the Parent and the performance of the transactions
herein contemplated have been duly authorized by the Board of Directors of the
Parent and to the extent necessary, its shareholders, and no further corporate
action on the part of the Parent is necessary to authorize this Agreement and
the performance of such transactions. This Agreement has been duly executed and
delivered by the Parent and constitutes the legal, valid and binding obligation
of the Parent, enforceable against the Parent in accordance with its terms,
except as such enforcement is limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditors' rights generally, and by
general equitable principles.
SECTION IV.2. No Conflict. Neither the execution and delivery of this
------------
Agreement nor the performance of the transactions contemplated herein by the
Parent will (i) violate or conflict with any of the provisions of the
Certificate of Incorporation or By-laws of the Parent, (ii) violate or
constitute a default, an event of default or an event creating rights of
acceleration, termination or cancellation or other additional rights or loss of
rights under any mortgage, indenture, deed of trust, lease, contract, agreement,
license or other instrument or any order, judgment or ruling of any Governmental
Body to which the Parent is a party or by which any of its assets or property is
bound, or (iii) result in the creation of any Encumbrance upon any of the assets
or property of Parent except for violations or defaults which do not have a
material adverse financial impact on the Parent.
SECTION IV.3. Consents. No consent, approval or authorization of, or
---------
declaration, filing or registration with, any Person is required to be obtained,
made or given by Parent in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated by this Agreement.
SECTION IV.4. Brokerage. The Parent has not retained or incurred
----------
any obligation to any investment banker, broker or finder in connection
with the transactions contemplated by this Agreement.
SECTION IV.5. Investment Representations. The Parent is acquiring
----------------------------
the CC/USA Shares solely for its own account with the present intention of
holding such securities for purposes of investment and it has no intention of
selling such securities in a public distribution in violation of the federal
securities laws. The Parent shall cause each new certificate for CC/USA Shares
to be imprinted with a legend in substantially the following form:
"The securities represented by this certificate are not registered
under the Securities Act of 1933 and cannot be transferred or sold
unless they are
F-26
<PAGE>
subsequently registered under that Act or, in the opinion of
counsel for the issuer, an exemption from such registration is
available."
SECTION IV.6. CUC Common Shares. All of the CUC Common Shares to be
-----------------
issued to the CC/USA Shareholders in connection with the transactions
contemplated hereby, on the date of issuance thereof, will be (a) duly
authorized, validly issued, fully paid and nonassessable, (b) covered by the
Registration Statement contemplated by Section 7.1(a), (c) listed for trading on
the NYSE, (d) subject to the Registration Statement being declared effective by
the SEC and to the limitations set forth in Section 7.1, freely tradable without
further registration under the Securities Act, and (e) free and clear of any
Encumbrance.
SECTION 4.7 Registration Statement. The Parent meets all
------------------------
requirements for the use of Form S-3, and the Registration Statement
contemplated by Section 7.1 will comply as to form in all material respects with
the requirements of the Securities Act and the rules and regulations thereunder
for the registration under the Securities Act of the resale of all of the CUC
Common Shares to be issued or delivered pursuant to the Merger, including all of
the CUC Common Shares issued pursuant to the Contingent Payment Agreement. The
Registration Statement will not, at the time it is declared effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF MERGECO
-----------------------------------------
As an inducement to the Company to enter into this Agreement and to
consummate the transactions contemplated hereby, the Parent and Mergeco, jointly
and severally, hereby represent and warrant to the Company as follows:
SECTION V.1. Organization and Authority. Mergeco is a corporation
-----------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to enter into this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement by Mergeco and the performance of the transactions herein
contemplated have been duly authorized by the Board of Directors of Mergeco and
its shareholder, and no further corporate action on the part of Mergeco is
necessary to authorize this Agreement and the performance of such transactions.
This Agreement has been duly executed and delivered by Mergeco and constitutes
the legal, valid and binding obligation of Mergeco, enforceable against Mergeco
in accordance with its terms, except as such enforcement is limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally, and by general equitable principles.
F-27
<PAGE>
SECTION V.2. No Conflict. Neither the execution and delivery of this
------------
Agreement nor the performance of the transactions contemplated herein by Mergeco
will (i) violate or conflict with any of the provisions of the Certificate of
Incorporation or By-laws of Mergeco or, or (ii) violate or constitute a default,
an event of default or an event creating rights of acceleration, termination or
cancellation or other additional rights or loss of rights under any mortgage,
indenture, deed of trust, lease, contract, agreement, license or other
instrument or any order, judgment or ruling of any Governmental Body to which
Mergeco is a party or by which any of its assets or property is bound, or (iii)
result in the creation of any Encumbrance upon any of the assets or property of
Mergeco.
SECTION V.3. Consents. No consent, approval or authorization of, or
---------
declaration, filing or registration with, any Person is required to be obtained,
made or given by Mergeco in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated by this Agreement.
SECTION V.4. Mergeco Capitalization. Mergeco's authorized capital
----------------------
stock consists of one thousand (1000) shares of common stock, no par value, of
which one hundred (100) shares are issued and outstanding all of which are
validly issued, fully paid and non-assessable. Except for this Agreement, there
are no options, warrants, preemptive rights, conversion privileges or other
contracts which give any Person the right to acquire any capital stock of
Mergeco or any interest therein. Parent is the beneficial and record owner of
all of the outstanding shares of common stock of Mergeco, free and clear of all
Encumbrances.
SECTION V.5. Business Activity. Mergeco has not engaged in any
------------------
business activity of any nature prior to the date of this Agreement.
ARTICLE VI.
COVENANTS OF THE PARTIES PENDING CLOSING
-----------------------------------------
The respective parties hereto agree to take the following actions
between the date hereof and the Closing Date:
SECTION VI.1. Third Party Debt. As soon as practicable after the date
-----------------
of this Agreement, the Company shall provide proper notice to and seek to obtain
the necessary consents from each of First Midwest Bank ("First Midwest") and INS
(Hong Kong) Limited ("INS") required to avoid the occurrence of any event of
default under any agreement between the Company and either of such lenders upon
the consummation of the Merger. The parties agree that the consent to be
requested from First Midwest shall include the requirement that all guarantees
by CC/USA Shareholders of the Company's obligations to First Midwest shall be
released and cancelled effective as of the Effective Time and that such
guarantees will not need to be replaced by any guarantee from Parent or any of
its affiliates. If required by either or both
F-28
<PAGE>
lenders or if otherwise requested by Parent, the Company shall use commercially
reasonable efforts (with the reasonable cooperation of Parent) to enter into
arrangements satisfactory to Parent with First Midwest or INS, or with both
lenders, whereby all obligations of the Company owed to such lender(s) would be
satisfied in full on or immediately after the Effective Time. If the full
satisfaction of all indebtedness owed by the Company to either or both of such
lender(s) is required at or immediately after the Effective Time, then Parent
shall provide the Company, or arrange for the Company to receive, all funds
necessary to satisfy all such outstanding indebtedness on the Effective Date or
as soon thereafter as possible. If all obligations owed to First Midwest are to
be satisfied in full at or immediately after the Effective Time, the Company
shall use all reasonable efforts to enter into appropriate arrangements with
First Midwest providing for the release and removal of all Encumbrances of such
bank on property or assets of the Company securing such obligations.
SECTION VI.2. Antitrust Law Compliance. Based on the Company's
-------------------------
representation that its total assets are less than $10,000,000 as of the date
hereof and will not equal or exceed $10,000,000 as of the Closing Date, the
parties acknowledge and agree that no notifications are required to be filed
with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the Antitrust Improvements Act with respect
to the transactions contemplated herein.
SECTION VI.3. Conduct of Business. Except as otherwise contemplated
--------------------
by the transactions provided for herein, pending the Closing, the Company shall
operate and carry on the Business only in the ordinary course consistent with
past practices. Notwithstanding anything contained in the immediately preceding
sentence, pending the Closing:
(a) The Company shall take reasonable actions to maintain its assets in
substantially their present state of repair, reasonable wear and tear and damage
by fire or other casualty excepted, and to preserve the goodwill of the Business
and relationships with their customers, suppliers, employees and other Persons
having business relations with it.
(b) The Company shall not take any of the following actions
without the prior written approval of the Parent:
(i) Sell, assign, transfer, lease, consume or otherwise
dispose of any property or assets except in the ordinary course of
business consistent with past practice or merge or consolidate with any
Person;
(ii) Amend, modify, cancel or waive any rights under any
Contract listed on Schedule 4.12(a) or enter into any Contract that
would be required to be disclosed on Schedule 4.12(a), other than in
the ordinary course of business;
F-29
<PAGE>
(iii) Make any capital expenditure or commit to make any
capital expenditure in excess of $50,000 (whether or not included in
any budget), or make capital expenditures that in the aggregate (and
when combined with 1996 capital expenditures made before the date
hereof) exceed the total budgeted amount set forth in the Capital
Expenditures Budget attached hereto as Schedule 6.3;
(iv) Mortgage, pledge or subject to Encumbrances (other
than purchase money liens) any properties or assets of the Company;
(v) Assume, incur or guarantee any obligation or liability for
borrowed money, except for endorsements for collection in the ordinary
course of business and guarantees by CC/USA of obligations of Dial
arising in the ordinary course of business;
(vi) Cancel, compromise or waive any debts owed to it, except
for compromises of trade debt in the ordinary course of business
consistent with past practice which, in the aggregate, do not exceed
$10,000;
(vii) Make any changes in its accounting methods,
principles or practices;
(viii) Knowingly do any act or omit to do any act within its
reasonable control which will cause it to breach of any representation,
warranty or obligation contained in this Agreement;
(ix) Amend its Certificate of Incorporation (except as
contemplated herein) or By-laws;
(x) Except as may be required by any contract listed on
Schedule 3.2, issue any of its capital stock or make any change in its
issued and outstanding capital stock, issue any option or any security
convertible into its capital stock or redeem, purchase or otherwise
acquire any shares of its capital stock;
(xi) Declare or pay any dividend or make any other payment
or distribution with respect to its capital stock;
(xii) Increase the wages, salaries, compensation, pension or
other benefits payable to any former employee or any current employee
who, as of the date hereof, receives annual compensation in excess of
$50,000;
(xiii) Make any filings or registrations, including but not
limited to, FCC tariff filings, with any Governmental Body, except
routine filings and registrations made in the ordinary course of
business; or
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<PAGE>
(xiv) Agree to do any of the foregoing, except as
contemplated by this Agreement.
SECTION VI.4. Confidentiality. Each party will, and will cause
----------------
its principals, Affiliates, associates, officers and other personnel and
authorized representatives to hold all information received by it in connection
with the transactions contemplated hereby in accordance with that certain
Confidentiality Agreement between Parent and CC/USA dated January 11, 1996,
except as may be required by applicable law or as otherwise contemplated herein.
SECTION VI.5. No Public Announcement. No party hereto shall, without
-----------------------
the approval of the others, make any press release or other public announcement
concerning the transactions contemplated by this Agreement, except as and to the
extent that any such party shall be so obligated by law or the rules of any
stock exchange on which the shares of the Parent are traded, in which case the
other party shall be advised and the parties shall use their best efforts to
cause a mutually agreeable release or announcement to be issued.
SECTION VI.6. Conversions of Equity Equivalents. The Company shall
----------------------------------
cause Persons holding any options, warrants or other rights to purchase or
securities convertible into or exchangeable for (i) shares of capital stock of
CC/USA to either exercise or convert such securities into CC/USA Shares prior to
Closing or forfeit the same, and (ii) shares of capital stock of Dial to either
convert such securities into cash prior to Closing or forfeit the same.
SECTION VI.7. Notification of Changes; Disclosure Schedule Updates.
------------------------ ---------------------------
The Company shall promptly notify Parent in writing of the existence or
happening of any fact, event or occurrence which should be included in the
Company's Schedules in order to make the representations and warranties set
forth in Article III true and correct in all material respects as of the Closing
Date (each such additional written disclosure being hereinafter referred to as a
"Disclosure Schedule Update"). The Company shall promptly notify Parent of the
Company's breach of any of its covenants in this Agreement or the occurrence of
any event that may reasonably be expected to make the satisfaction of the
conditions in Article VIII impossible or unlikely.
SECTION VI.8. Conduct of Business of Mergeco. During the period
-------------------------------
from the date of this Agreement to the Effective Time, Mergeco shall not engage
in any business or activity of any nature except as provided in or contemplated
by this Agreement.
SECTION VI.9. Consents of Third Parties, Government. Each of the
---------------------------------------
Parent and the Company will act diligently and reasonably to secure, prior to
the Closing Date, the consent, approval or waiver, in form and substance
reasonably satisfactory to the other, from any third Person or Governmental Body
required to be obtained by it to satisfy the condition set forth in Section 8.2,
with respect to the Company, and Section 9.2, with respect to the Parent. The
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<PAGE>
parties shall file the requisite applications with the FCC and, if necessary,
the Illinois Commerce Commission as soon as practicable after the execution of
this Agreement.
SECTION VI.10. Pre-Closing Actions. Prior to the Closing, the
--------------------
appropriate party(ies) shall take the following actions:
(a) Parent shall deposit with Illinois Stock Transfer Company (the
"Exchange Agent"), a sufficient number of shares of CUC Common Shares to
complete the Merger on the Closing Date and shall instruct the Exchange Agent to
distribute CUC Common Shares so deposited in accordance with Section 2.4 hereof
to the CC/USA Shareholders who have theretofore delivered their CC/USA Shares to
the Exchange Agent, as soon as practical after the Effective Time. It is
understood by the parties that in order for the Exchange Agent to distribute CUC
Common Shares to the CC/USA Shareholders on the Effective Date, the Exchange
Agent must receive such shareholders' CC/USA Shares and such Transmittal Letter
at least five (5) days prior to the Effective Date. The Parent shall use its
reasonable efforts to effectuate the distribution of the CUC Common Shares to
the CC/USA Shareholders as soon as practicable after the Effective Time upon
receipt of certificates representing CC/USA Shares and duly executed Transmittal
Letters.
(b) The Company shall use all reasonable efforts to obtain, as soon as
practicable after the date hereof and in any event at least 10 days prior to the
Closing Date, from each Person who is to receive CUC Common Shares pursuant to
the Merger a properly completed Purchaser Questionnaire in the form required by
the Parent. If a properly completed Purchaser Preliminary Questionnaire has not
been received from all such Persons at least 10 days prior to the Closing Date,
then the Company shall use all reasonable efforts to contact each such Person
who has not so returned such questionnaire in order to verify the accuracy of
the Company's representation and warranty in Section 3.28(b) as of the Closing
Date. The Company also shall assist the CC/USA Shareholders in delivering their
CC/USA Shares to the Exchange Agent together with the Transmittal Letters at
least five (5) days prior to the Effective Date. Each Transmittal Letter shall
include the address to which the Exchange Agent shall deliver such CC/USA
Shareholder's CUC Common Shares and Contingent Payment Right.
(c) Parent, Mergeco and the Company shall take all necessary steps to
pre-clear the Merger with the Secretary of State of Delaware, in order that on
the Closing Date the Certificate of Merger may be filed with such Secretary of
State upon the exchange of documents required in Sections 10.2 and 10.3 hereof.
SECTION VI.11. Meetings of Shareholders. CC/USA shall take all
-------------------------
actions necessary, in accordance with the GCL and its Certificate of
Incorporation and By-Laws, to duly call, give notice of, convene, and hold a
meeting of the CC/USA Shareholders as promptly as practicable, to consider and
vote upon the adoption and approval of this Agreement (as a plan of merger under
Section 251 of the GCL), the Merger, the approval of an amendment to Article
Fourth,
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<PAGE>
Section C.4.f. of CC/USA's Certificate of Incorporation, and the other
transactions contemplated by this Agreement to the extent such approval is
required by the GCL and CC/USA's Certificate of Incorporation. CC/USA shall
recommend to the CC/USA Shareholders that they vote their CC/USA Shares in favor
of this Agreement, the Merger, the amendment to CC/USA's Certificate of
Incorporation, and such other transactions and shall use its reasonable efforts
to secure the vote of shareholders required by the GCL and CC/USA's Certificate
of Incorporation to approve such matters and to effect such transactions. By the
Voting Agreement dated and executed as of the date hereof, the CC/USA
Shareholders parties thereto who collectively hold in excess of fifty percent
(50%) of the voting shares of CC/USA have agreed to vote, or cause to be voted,
all of the shares of capital stock of CC/USA owned by such shareholders in favor
of this Agreement, the Merger, the amendment to CC/USA's Certificate of
Incorporation, and the other transactions contemplated by this Agreement.
SECTION VI.12. Affiliate Letters. The Company shall promptly identify
------------------
to the Parent all officers and directors of the Company and any other persons
who are "affiliates" within the meaning of such term as used in Rule 145 under
the Securities Act ("Rule 145 Affiliates"), and the Company covenants to use its
reasonable efforts to provide to the Parent undertakings from such persons
("Affiliate Letters") to the effect that no disposition of CUC Common Shares
received in the Merger will be made by such persons except within the limits and
in accordance with the applicable provisions of the Securities Act, as amended
from time to time, or except in a transaction which, in the opinion of legal
counsel satisfactory to the Parent, is exempt from registration under the
Securities Act.
SECTION VI.13. No Solicitation. Neither the Company nor any of its
----------------
officers, directors, representatives, or agents shall, directly or indirectly,
knowingly encourage, solicit, initiate, or participate in any way in discussions
or negotiations with, or knowingly provide any confidential information to, any
Person or group (other than the Parent or any affiliate or association of the
Parent and their respective directors, officers, employees, representatives, and
agents) concerning any merger of the Company, the sale of any substantial part
of the assets of the Company, any sale of shares of capital stock of the
Company, or any similar transaction involving the Company; provided, however,
--------- -------
that nothing contained in this Section 6.13 shall prohibit the Board of
Directors of the Company from (i) making any disclosure to the CC/USA
shareholders that, in the judgment of the Board of Directors of the Company,
with the written advice of outside counsel, may be required under applicable
law, (ii) responding to any unsolicited proposal or inquiry by advising the
Person making such proposal or inquiry of the terms of this Section 6.13, or
(iii) prior to the meeting of CC/USA Shareholders contemplated by Section 6.11,
furnishing information to any person or entity that makes an unsolicited bona
fide offer to acquire CC/USA pursuant to a merger, consolidation, share
exchange, purchase of substantially all of the assets, or otherwise, if, and
only to the extent that in the judgment of the board of directors of CC/USA,
with written advice of outside counsel, such action is required for the board of
directors to comply with its fiduciary duties to the CC/USA Shareholders under
applicable laws. The Company will promptly communicate to the Parent the fact
that it has
F-33
<PAGE>
received any proposal or inquiry in respect of any such transaction and of any
such information requested from it or of any such negotiations or discussions
being sought to be initiated with the Company.
SECTION VI.14. Access to Information. The Company shall allow
-----------------------
the Parent and its authorized employees, representatives and designees
(collectively, the "Representatives") reasonable access during normal business
hours to all of CC/USA's and Dial's properties and records (including without
limitation all supporting workpapers of its independent auditors for the
Company's financial statements), officers, employees, counsel, auditors and
investment bankers and shall make available to the Parent and the
Representatives such information concerning the Company's affairs and the
Business as the Parent may reasonably request.
SECTION VI.15. Further Assurances. Each of the parties hereto
--------------------
shall execute such documents and other instruments and take such further actions
as may be reasonably required or desirable to carry out the provisions hereof
and consummate the transactions contemplated hereby. Upon the terms and subject
to the conditions hereof, each of the parties hereto shall use its respective
reasonable efforts to (i) take or cause to be taken all actions and to do or
cause to be done all other things necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by
this Agreement and (ii) obtain in a timely manner all necessary waivers,
consents and approvals and to effect all necessary registrations and filings.
ARTICLE VII.
ADDITIONAL COVENANTS OF THE PARTIES
-----------------------------------
SECTION VII.1. Registration Statement.
-----------------------
(a) Parent shall use all reasonable efforts to file with the SEC, as
soon as reasonably practicable after the Effective Time, a Registration
Statement on Form S-3 with respect to the sale by the Persons receiving CUC
Common Shares in connection with the Merger, including CUC Common Shares issued
pursuant to the Contingent Payment Agreement (the "Registration Statement"), and
shall use all reasonable efforts to have the Registration Statement declared
effective by the SEC as soon as reasonably practicable after the Effective Time.
Parent agrees to use its reasonable and commercially prudent efforts to keep
such Registration Statement continuously effective until the earlier of (i) the
date on which all of the securities covered by such Registration Statement have
been sold or (ii) the date on which none of the Persons receiving CUC Common
Shares in connection with the Merger is required, with respect to their resale
of any such securities, to deliver a Prospectus under the Securities Act, any
rules and regulations thereunder or pertinent interpretations of the staff of
the SEC. Parent further agrees, if necessary, to use its reasonable and
commercially prudent efforts to timely supplement or amend such Registration
Statement, if required by the rules, regulations or instructions applicable
F-34
<PAGE>
thereto or by the Securities Act or by any rules and regulations thereunder;
provided that, Parent reserves the right in its sole discretion, subject to
applicable law and stock exchange rules, to determine whether and when to
disclose any material development not specifically pertaining to the Merger, the
Persons receiving CUC Common Shares in connection with the Merger or the resale
by any such Person of any such securities. Parent agrees to make available to
the Persons receiving CUC Common Shares in connection with the Merger copies of
such Registration Statement, the prospectus therein and any supplement or
amendment to either, promptly upon reasonable request from any such Person.
(b) No Person receiving CUC Common Shares in connection with the Merger
shall rely on such Registration Statement or deliver the prospectus therein for
any resale of CUC Common Shares without first inquiring of Parent's corporate
secretary, who upon such inquiry shall promptly notify such Person and, if
requested by such Person, confirm such advice in writing (i) whether such
Registration Statement has become effective and any necessary post-effective
amendment or supplement to such Registration Statement or the prospectus therein
has become effective, (ii) of any request by the SEC for additional information
after such Registration Statement has become effective, (iii) of the issuance by
the SEC of any stop order suspending the effectiveness of such Registration
Statement or the initiation of any proceeding for that purpose, or (iv) of the
happening of any event (though Parent shall have no obligation to disclose such
event) during the period such Registration Statement is effective which makes
any statement made in such Registration Statement or the prospectus therein
untrue in any material respect or which requires the making of any changes in
such Registration Statement or prospectus therein so that, as of such date, the
statements therein are not misleading and do not omit to state a material fact
required to be stated therein or necessary to make the statements therein no
misleading. Any such advice shall include any instruction to suspend the use of
such Registration Statement or the prospectus therein until any requisite
changes thereto have been made by Parent or are determined by Parent not to be
required.
(c) Parent may require any holder of securities covered by such
Registration Statement to furnish Parent such information regarding such holder
and its sale of such securities as Parent may from time to time reasonably
request. Each holder of such securities agrees by acquisition of such securities
that, upon receipt of any notice from Parent of the happening of any event of
the kind described in clauses (ii), (iii) or (iv) of the first sentence in
Section 7.1(b) above, such holder will forthwith discontinue disposition of any
securities pursuant to such Registration Statement until such holder's receipt
of the copies of any supplemented or amended prospectus contemplated by Sections
7.1(a) and (b) above or unless and until otherwise instructed by Parent that no
such supplement or amendment is required. If so directed by Parent, each holder
will deliver to Parent all copies, other than permanent file copies then in such
holder's possession, of any prospectus covering such securities that Parent
determines is no longer current.
ARTICLE VIII.
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<PAGE>
CONDITIONS TO THE OBLIGATIONS OF THE PARENT
-------------------------------------------
The obligations of the Parent to consummate the transactions
contemplated by this Agreement will be subject to the satisfaction, on or before
the Closing Date, of each of the following conditions unless waived in writing
by the Parent:
SECTION VIII.1. Representations and Warranties; Performance. All
----------------------------------------------
representations and warranties made by the Company in this Agreement will be
true and correct in all material respects on the Closing Date as though made on
the Closing Date, except for changes contemplated by this Agreement and without
giving effect to any Disclosure Schedule Update. The Company shall have
performed and complied in all material respects with all arrangements, covenants
and conditions required by this Agreement to be performed and complied with by
it prior to the Closing Date. The Company shall have so certified to the
foregoing in writing to the Parent as of the Closing Date.
SECTION VIII.2. Authorizations, Approvals and Consents. All
---------------------------------------
authorizations, approvals or consents of any and all Governmental Bodies or
other Persons required to be obtained by the Company to consummate the
transactions contemplated by this Agreement which, either individually or in the
aggregate, if not obtained, would have a material adverse effect on the
Business, including without limitation, the authorizations, approvals, or
consents listed on Schedule 3.5, shall have been validly obtained and copies
thereof shall have been delivered to the Parent.
SECTION VIII.3. No Proceeding or Litigation. No action, suit or
----------------------------
proceeding before any court or any other Governmental Body shall have been
commenced or threatened, and no investigation by any Governmental Body shall
have been threatened, against any of the parties to this Agreement or any of the
principals, officers or directors of any of them seeking to restrain, prevent or
change the transactions contemplated hereby or questioning the validity or
legality of any of such transactions or seeking damages in connection with any
of such transactions. In addition, the waiting period under the Antitrust
Improvements Act shall have expired or been terminated.
SECTION VIII.4. Other Documents. The Company shall have
----------------
furnished or caused to be furnished to the Parent the documents set forth in
Section 10.2 and such other documents and certificates as may be reasonably
requested by the Parent.
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<PAGE>
SECTION VIII.5. Adverse Change. Between the date hereof and the
----------------
Closing Date, there shall have been (a) no material adverse change in the assets
and properties of the Company, its business, operations, liabilities, profits or
financial condition, (b) no material damage to Company's assets or properties by
fire, flood, casualty, act of God or the public enemy or other cause, and (c) no
material adverse federal or state legislative or regulatory change affecting
CC/USA's or Dial's business or operations; and the Company shall have so
certified to the Company on the Closing Date.
SECTION VIII.6. Opinion of Counsel. Parent shall have received written
-------------------
opinions from the Company's counsel and the Company's communications counsel,
addressed to the Parent, dated as of the Closing Date, in form and substance
reasonably satisfactory to Parent and its counsel, to the effect set forth in
Exhibits E-1 and E-2, respectively.
SECTION VIII.7. Corporate Action. The Company shall have taken all
------------------
corporate action necessary to approve the transactions contemplated by the
Agreement, the CC/USA Shareholders shall have duly approved the Merger, and the
amendment to the Certificate of Incorporation and the Company shall have
furnished Parent with copies of resolutions, adopted by the Board of Directors
of the Company and the CC/USA Shareholders and certified by the secretary of the
Company as of the Closing Date, in form and substance reasonably satisfactory to
counsel for Parent, in connection with such transactions.
SECTION VIII.8. Affiliate Letters. Each Rule 145 Affiliate shall
-------------------
have executed and delivered to the Parent an Affiliate Letter in form and
substance reasonably satisfactory to the Parent and its counsel, together with
such other documents and instruments the Parent may reasonably request related
to compliance with the Securities Act.
SECTION VIII.9. Dissenting Shareholders. In the event any of the
------------------------
shareholders of CC/USA exercise dissenters' rights which shall entitle the
shareholder to an appraisal of the fair value of the CC/USA Shares held by such
shareholder, as contemplated by Section 2.6 of this Agreement and pursuant to
Section 262 of the GCL, the number of CC/USA Shares subject to such appraisal
shall not exceed five percent of the total of all of the CC/USA Shares.
SECTION VIII.10. Stock Options; Shareholder Agreements. The Company
--------------------------------------
shall have delivered to the Parent evidence reasonably satisfactory to the
Parent that (i) all CC/USA stock options and convertible securities shall have
been exercised, converted or cancelled as of the Closing Date; (ii) all Dial
stock options shall have been exchanged for cash, or shall have been forfeited,
such that CC/USA owns 100 percent of the capital stock of Dial on a fully
diluted basis immediately prior to the Effective Time; and (iii) the Stock
Purchase Agreement described in item 2 on Schedule 3.2(b) shall have been
terminated and be of no further force or effect as of the Closing Date.
F-37
<PAGE>
SECTION VIII.11. Third Party Debt. The Company shall have
-----------------
obtained all consents from First Midwest, INS and all other third party lenders
required to permit the consummation of the transactions contemplated hereby and,
if the indebtedness owed by the Company to First Midwest is to be satisfied in
full at or immediately after the Effective Time, then the Company shall have
delivered to the Parent satisfactory evidence that all Liens of First Midwest
affecting or encumbering the assets or properties of the Company will be
terminated or released upon such satisfaction.
SECTION VIII.12. Securities Law Compliance. Parent and its securities
--------------------------
law counsel shall be reasonably satisfied that the offer and sale by Parent of
Parent securities pursuant to this Agreement were and are eligible for an
exemption from the registration requirements of Section 5 of the Securities Act
pursuant to Rule 506 promulgated by the SEC pursuant to the Securities Act,
including by means of (i) receipt of properly completed Purchaser Preliminary
Questionnaires from substantially all of the Persons who are to receive CUC
Common Shares pursuant to the Merger to confirm that there are no more than 35
Unaccredited Shareholders, it being understood that each such Person who has not
returned a properly completed Purchaser Questionnaire shall be deemed to be an
Unaccredited Shareholder, (ii) with respect to each Unaccredited Shareholder,
receipt of such information, which may be in the form of a properly completed
Purchaser Questionnaire or in such other form, as may be reasonably required by
the Parent and its securities counsel in order for the Parent to reasonably
believe, immediately prior to the Effective Time, that each Unaccredited
Shareholder, either alone or with his purchaser representative(s), has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of the prospective investment in CUC Common
Shares, and (iii) the taking of such other actions as may be required by
Regulation D promulgated by the SEC under the Securities Act.
SECTION VIII.13. CC/USA Shareholders' Representative. Parent shall
------------------------------------
have received a true and complete copy of an agreement entered into among the
CC/USA Shareholders and the CC/USA Shareholders' Representative, fully executed
by Persons who are to receive substantially all of the CUC Common Shares
pursuant to the Merger and otherwise in form and substance reasonably
satisfactory to the Parent, authorizing the CC/USA Shareholders' Representative
to act on behalf of the CC/USA Shareholders in regard to matters arising under
the Contingent Payment Agreement, as contemplated by Section 3.12(d) of the
Contingent Payment Agreement.
ARTICLE IX.
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
--------------------------------------------
F-38
<PAGE>
The obligations of the Company to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each of the following conditions unless waived in
writing by the Company:
SECTION IX.1. Representations and Warranties; Performance. All
----------------------------------------------
representations and warranties made by the Parent and Mergeco herein shall be
true and correct in all material respects on the Closing Date as though made on
the Closing Date and the Parent and Mergeco shall have performed and complied in
all material respects with all agreements, covenants and conditions required by
this Agreement to be performed and complied with by them prior to the Closing
Date and the Parent shall have so certified to the Company on the Closing Date.
SECTION IX.2. Authorizations, Approvals and Consents. All
----------------------------------------
authorizations, approvals and consents of any and all Governmental Bodies or
other Persons required to be obtained by the Parent to consummate the
transactions contemplated by this Agreement shall have been validly obtained and
copies thereof shall have been delivered to the Company.
SECTION IX.3. No Proceeding or Litigation. No action, suit or
------------------------------
proceeding before any court or any other Governmental Body shall have been
commenced or threatened, and no investigation by any Governmental Body shall
have been threatened, against any of the parties to this Agreement or any of the
principals, officers or directors of any of them seeking to restrain, prevent or
change the transactions contemplated hereby or questioning the validity or
legality of any of such transactions or seeking damages in connection with any
of such transactions. In addition, the waiting period under the Antitrust
Improvement Act shall have expired or been terminated.
SECTION IX.4. Adverse Change. Between the date hereof and the Closing
---------------
Date, there shall have been (a) no material adverse change in the assets and
properties of Parent, its business, operations, liabilities, profits or
financial condition, (b) no material damage to Parent's assets or properties by
fire, flood, casualty, act of God or the public enemy or other cause, and (c) no
material adverse federal or state legislative or regulatory change affecting the
Parent's business or operations; and the Parent shall have so certified to the
Company on the Closing Date.
SECTION IX.5. Corporate Action. Parent shall have taken all
-----------------
corporate action necessary to approve the transactions contemplated by this
Agreement, and Parent shall have furnished the Company with copies of
resolutions, adopted by the Board of Directors and, if necessary, Shareholders
of Parent and certified by the secretary of Parent as of the Closing Date, in
form and substance reasonably satisfactory to counsel for Company, in connection
with such transactions.
F-39
<PAGE>
SECTION IX.6. Other Documents. The Parent shall have furnished
-----------------
the Company with the documents set forth in Section 10.3 and such other
documents and certificates as may be reasonably requested by the Company .
SECTION IX.7. Employment Letters. Each of Messrs. Robertson,
-------------------
Fraser and Ivesdal shall have received from Parent letters confirming their
respective employment on the terms set forth on Exhibit F.
SECTION IX.8. Incentive Stock Options. The Parent shall have
--------------------------
delivered to the key employees of the Company listed on Schedule 9.8 stock
option agreements duly executed by the Parent pursuant to which such employees
shall become entitled, effective as of the Closing Time, to receive qualified
incentive stock options for the number of shares of Parent 's common stock set
forth opposite such person's name on Schedule 9.8.
SECTION IX.9. Opinion. The Company shall have received a written
--------
opinion from Parent's counsel, addressed to the Company and dated as of the
Closing Date, in form and substance reasonably satisfactory to the Company, to
the effect set forth in Exhibit G.
SECTION 9.10 Resale Registration Statement. The Company shall be
------------------------------
reasonably satisfied that the Registration Statement will be filed by the
Parent as soon as practicable after the Effective Time and will become effective
within a reasonable period of time after the Effective Time.
ARTICLE X.
CLOSING
-------
SECTION X.1. Closing. Unless this Agreement shall have been
--------
terminated pursuant to the provisions of Article XI hereof, the Closing shall be
held as soon as the conditions to Closing set forth in Articles VIII and IX have
been satisfied, but in no event later than December 31, 1996 ("Closing Date"),
at 11:00 a.m. at the offices of Shefsky Froelich & Devine Ltd., Suite 2500, 444
North Michigan Avenue, Chicago, Illinois 60611.
SECTION X.2. Delivery of Documents by the Company. The Company
--------------------------------------
agrees to execute and deliver, or cause to be executed and delivered, to the
Parent at the Closing, the following:
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<PAGE>
(a) All of the instruments and documents required to be delivered
under Article VIII;
(b) Written resignations of all officers and directors of CC/USA
and Dial effective as of the Closing Date;
(c) All minute books, stock record books and other corporate
records relating to CC/USA and Dial;
(d) The Contingent Payment Agreement; and
(e) Such other documents as the Parent may reasonably request.
SECTION X.3. Delivery of Documents by the Parent. The Parent
---------------------------------------
agrees to execute and deliver, or cause to be executed and delivered, at the
Closing, the following:
(a) The Contingent Payment Agreement;
(b) All of the instruments and documents required to be delivered
under Article IX; and
(c) Such other documents as the Company may reasonably request.
SECTION X.4. Filing of Certificate of Merger. Concurrent with the
--------------------------------
exchange of documents referred to in this Article X, and subject to the
conditions set forth herein, Parent, Mergeco and the Company hereby authorize
the filing of the Certificate of Merger in the office of the Secretary of State
of Delaware.
ARTICLE XI.
TERMINATION AND REMEDIES
------------------------
SECTION XI.1. Methods of Termination. This Agreement may be
-----------------------
terminated prior to the Closing Date under the following circumstances:
(a) by mutual consent of the Company and the Parent; or
(b) by the Parent by giving written notice to the Company, if (i)
subject to the provisions of Section 11.2, there has been a material
misrepresentation, breach of covenant or breach of warranty on the part of the
Company in its representations, warranties and covenants set forth in this
Agreement, it being understood that the Company shall not be in breach of this
F-41
<PAGE>
Agreement if it is unable to make the representations and warranties set forth
in Article III in all material respects on the Closing Date due to the existence
or happening of any fact, event or occurrence that arose or occurred after the
execution hereof and which has been properly disclosed to the Parent in any
Disclosure Schedule Update pursuant to Section 6.7, (ii) the Board of Directors
of CC/USA shall not recommend to the CC/USA Shareholders the approval of this
Agreement, or shall withdraw or modify in an manner adverse to the Parent its
approval or recommendation of the transactions contemplated hereby, or shall
take any other action to facilitate any other transaction or series of
transactions that, if consummated, would impair the Parent's ability to
consummate the transactions contemplated hereby, or (iii) more than fifty
percent (50%) of the CC/USA Shareholders shall fail to vote in favor of (or
shall have rescinded a vote in favor of) this Agreement, the Merger or the
amendment to Article Fourth, Section C.4.f. of CC/USA's Certificate of
Incorporation; or
(c) by the Company by giving written notice to the Parent, if (i)
subject to the provisions of Section 11.2, there has been a material
misrepresentation, breach of covenant or breach of warranty on the part of the
Parent or Mergeco in their representations, warranties and covenants set forth
in this Agreement, or (ii) more than fifty percent (50%) of the CC/USA
Shareholders shall fail to vote in favor of (or shall have rescinded a vote in
favor of) this Agreement, the Merger or the amendment to Article Fourth, Section
C.4.f. CC/USA's Certificate of Incorporation; or
(d) by either party if the Closing has not occurred for any reason by
December 31, 1996, provided that such terminating party is not then in breach of
this Agreement. For purposes of this Article XI, a party shall not be deemed to
be "in breach of this Agreement" if a representation or warranty when made was
materially true and accurate, and subsequently becomes inaccurate, except as a
result of a party's willful and intentional breach of its obligations hereunder.
SECTION XI.2. Opportunity to Cure. Notwithstanding anything
--------------------
contained herein to the contrary, neither the Company nor the Parent shall
terminate this Agreement under Section 11.1(b)(i) or (c)(i) unless such party
shall have first given the other party notice of its intent to terminate this
Agreement setting forth the nature of the condition to the terminating party's
obligation to close which remains unsatisfied and the other party shall have
failed to satisfy such condition within ten (10) days after receipt of such
notice; provided that if such condition is of a nature that it cannot be
--------
reasonably satisfied within such ten (10) day period, then, if the defaulting or
breaching party shall have commenced an attempt to satisfy such condition within
such ten (10) day period, the period to satisfy such condition shall be extended
until the earlier of the date which is thirty (30) days after receipt of such
notice, or such date as the defaulting or breaching party has failed to
diligently and in good faith continue its efforts to satisfy its unsatisfied
conditions.
F-42
<PAGE>
SECTION XI.3. Procedure Upon Termination. In the event of
---------------------------
termination pursuant to Section 11.1:
(a) each party will return all documents and other material of the
other party relating to the transactions contemplated hereby, whether so
obtained before or after the execution hereof, to the party furnishing the same;
(b) all information received by any party hereto with respect to the
business of any other party (other than information which is a matter of public
knowledge or which has heretofore been or is a matter of public knowledge or
which has heretofore been or is hereafter published in any publication for
public distribution or filed as public information with any Governmental Body)
shall not at any time be used for the advantage of, or disclosed to third
Persons by, such party to the detriment of the party furnishing such
information; and
(c) no party hereto shall have any liability or further obligation to
any other party to this Agreement, except as provided in Section 11.4 or Article
XII.
SECTION XI.4. Remedies. Any party terminating this Agreement
--------
pursuant to Section 11.1(b)(i) or (c)(i) shall have the right to sue for damages
up to $250,000 and all reasonable out-of-pocket costs and expenses sustained by
the nondefaulting party. If the Parent terminates this Agreement pursuant to
Section 11.1(b)(ii) or (iii) or if the Company terminates this Agreement
pursuant to Section 11.1(c)(ii), then CC/USA shall pay Parent $250,000 by wire
transfer within ten (10) business days of such termination.
SECTION 11.5. Right to Specific Performance. Each party
-------------------------------
acknowledges that the unique nature of the transactions to be consummated
hereunder pursuant to this Agreement renders money damages aninadequate
remedy for the breach by each party of its obligations under this Agreement,
and the parties agree that in the event of such breach, the parties will upon
proper action instituted by either of them, be entitled to a decree of
specific performance of this Agreement.
ARTICLE XII.
POST-CLOSING LIABILITY
----------------------
SECTION 12.1 Representations and Warranties of Parent. In the event the
----------------------------------------
Merger is consummated, Parent and Mergeco shall be liable to the CC/USA
Shareholders for any breach of any warranty or representation contained in
Articles IV and V hereof and, with respect to the information concerning
Citizens which is furnished by Citizens to CC/USA for inclusion in the proxy
statement to the CC/USA Shareholders to be prepared by CC/USA, for any untrue
statement of a material fact or any omission to state a material fact concerning
Citizens which is required to be stated therein or which is necessary to make
the statements made by Citizens
F-43
<PAGE>
therein not misleading in light of the circumstances in which they are made,
only to the extent, if any, that Parent would be liable under applicable
securities laws irrespective of the terms and conditions of this Agreement,
provided that no claims may be made against the Parent from and after the first
anniversary of the Closing Date.
SECTION XII.1. Termination of Company's Representations and
---------------------------------------------------
Warranties. The representations and warranties of the Company contained in
- -----------
Article III shall expire, lapse and be of no further force or effect from and
after the Effective Time, and after such time, the Surviving Corporation shall
have no liability of any nature (including liability to indemnify Parent) on
account of the breach of any such representation or warranty.
<PAGE>
ARTICLE XIII.
MISCELLANEOUS PROVISIONS
-------------------------
SECTION XIII.1. Amendment and Modification. This Agreement may be
----------------------------
amended, modified and supplemented only by written agreement of the parties
hereto.
SECTION XIII.2. Waiver of Compliance, Consents. Any failure of the
---------------------------------
parties to comply with any obligation, covenant, agreement or condition herein
may be waived in writing by the parties, or by their respective officers or
representatives thereunto duly authorized but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in this
Section 13.2.
SECTION XIII.3. Expenses. Subject to the provision of Section 11.4,
---------
each party will pay its own legal and other expenses incurred by it, or on its
behalf, in connection with the negotiation and preparation of this Agreement and
the transactions contemplated herein whether or not such transactions are
completed or this Agreement is terminated.
SECTION XIII.4. Investigations. The respective representations and
---------------
warranties of the parties contained herein or in any certificates or other
documents delivered prior to or at the Closing shall not be deemed waived or
otherwise affected by any investigation made by any party hereto.
SECTION XIII.5. Headings. The article and section headings
---------
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
F-44
<PAGE>
SECTION XIII.6. Notices. All notices, requests, demands and
--------
other communications required or permitted to be given hereunder shall be in
writing and shall be deemed to have been given as follows: on the day
established by the sender as having been delivered personally; on the day
delivered by a private courier as established by the sender by evidence obtained
from the courier; or on the third (3rd) day after the date mailed, by certified
or registered mail, return receipt requested, postage prepaid. Such
communications, to be valid, must be addressed as follows:
(a) If to the Company:
c/o Ken Robertson
Conference Call USA, Inc.
855 South Federal Highway
Suite 206
Boca Raton, Florida 33432
with a copy to:
Shefsky Froelich & Devine Ltd.
444 North Michigan Avenue
Chicago, Illinois 60611
Attention: Mitchell D. Goldsmith
(b) If to the Parent :
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Attention: Donald Weinstein
F-45
<PAGE>
With a copy to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II, Esq.
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin, Esq.
or to such other address or to the attention of person or persons as the
recipient party has specified by prior written notice to the sending party (or
in the case of counsel, to such other readily ascertainable business address as
such counsel may hereafter maintain). If more than one method for sending notice
as set forth above is used, the earliest notice date established as set forth
above shall control.
SECTION XIII.7. Assignment. This Agreement and all of the
----------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party hereto without the prior written consent of the other
party.
SECTION XIII.8. Governing Law. This Agreement shall be governed by
--------------
the law of the State of Delaware as to all matters, including, but not limited
to, matters of validity, construction, effect and performance. The parties agree
that any dispute arising in connection with this Agreement may first be
submitted for good faith resolution by a form of mutually agreed upon
alternative dispute resolution. Should the parties fail to agree upon a form of
alternative dispute resolution or should such form of alternative dispute
resolution not be successful in resolving the dispute, the parties irrevocably
agree that all actions arising directly or indirectly as a result or in
consequence of this Agreement, shall be instituted and litigated only in courts
having situs in the State of Delaware and each of the parties hereby consents to
the exclusive jurisdiction and venue of any such court, and waives any objection
based on forum nonconveniens. Each of the parties hereby waives personal service
-------------------
of any and all process, and consents that all such service of process may be
made by certified mail, return receipt requested, directed to the party at the
address set forth in Section 13.6 in the manner provided by applicable statute,
law, rule of court or otherwise.
SECTION XIII.9. Counterparts. This Agreement may be executed in one
-------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
F-46
<PAGE>
SECTION XIII.10. No Third Party Beneficiaries. This Agreement
-------------------------------
shall not confer any rights on any Persons other than the CC/USA Shareholders'
Representative and the parties to this Agreement as provided herein.
SECTION XIII.11. Severability. In the event that any particular
-------------
provision or provisions of this Agreement shall for any reason be determined to
be unenforceable, or in violation of any law, government order or regulation,
such unenforceability or violation shall not affect the remaining provisions of
this Agreement which shall continue in full force and effect and be binding upon
the parties.
SECTION XIII.12. Disclaimer Regarding Projections. In connection
-----------------------------------
with the Parent's investigation of the Company, the Parent may have received
from the Company certain projections and other forecasts. The Parent
acknowledges that there are uncertainties inherent in attempting to make such
projections and other forecasts, that the Parent is familiar with such
uncertainties, that the Parent is taking full responsibility for making its own
evaluation of the adequacy and accuracy of all projections and other forecasts
so furnished to it, and that the Parent shall have no claim against the Company
with respect thereto. Accordingly, the Company makes no representation or
warranty with respect to such projections and other forecasts.
SECTION XIII.13. Announcements. The Parent and the Company agree
-------------
that except in accordance with applicable law or the rules of any stock exchange
on which the shares of the Parent are traded, neither will make any public
announcement concerning the consummation of the transactions provided herein
without first obtaining the written consent of the other.
SECTION XIII.14. Entire Agreement. This Agreement (including the
-----------------
Schedules and Exhibits attached hereto) and the agreements referred to herein
contain the entire agreement between the parties with respect to the
transactions contemplated hereby, and supersede all written or verbal
negotiations, representations, warranties, commitments, offers, bids, bid
solicitations, and other understandings prior to the date hereof between the
Parent and the Company. There are no agreements, covenants, representations or
warranties with respect to the transactions contemplated hereby other than those
expressly set forth herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
CITIZENS UTILITIES COMPANY:
By:____________________________________
Name:
F-47
<PAGE>
Its:
CONFERENCE-CALL USA, INC.
By:____________________________________
Name:
Its:
CITIZENS CONFERENCE CALL COMPANY
By:____________________________________
Name:
Its:
F-48
Exhibit 2.2
CONTINGENT PAYMENT AGREEMENT
THIS CONTINGENT PAYMENT AGREEMENT (the "Agreement"), is being entered
into this ____ day of ________________ 1996, by and among Citizens Utilities
Company, a Delaware corporation ("Parent"), Conference-Call USA, Inc., a
Delaware corporation ("CC/USA"), and CC/USA Representative, Inc., a Delaware
corporation ("CC/USA Shareholders' Representative").
R E C I T A L S
- - - - - - - -
A. Parent and CC/USA are parties to that certain Agreement and Plan of
Merger dated as of October 10, 1996 (the "Merger Agreement") among Parent,
CC/USA and Citizens Conference Call Company, a Delaware corporation ("Mergeco"),
pursuant to which Parent is acquiring all of the issued and outstanding shares
of capital stock of CC/USA;
B. Parent and CC/USA have agreed to accomplish this
transaction through a reverse triangular merger whereby Mergeco will merge
with and into CC/USA, and CC/USA will be the surviving corporation (the
"Merger");
C. In connection with the Merger, the CC/USA Shareholders (as defined
herein) will receive in exchange for their shares of CC/USA capital stock, (i)
shares of Series A Common Stock of Parent, $0.25 par value (the "CUC Common
Shares"), having an aggregate value of $15,500,000 (subject to certain
adjustments), and (ii) a Contingent Payment Right (as defined in the Merger
Agreement) representing the right to receive CUC Common Shares having an
aggregate value of up to $17,500,000 (the "Contingent Purchase Price"), which
shares will accrue to the CC/USA Shareholders based upon whether CC/USA and/or
Dial Services, Ltd., a Delaware corporation ("Dial"), achieve certain financial
results in future periods; and
D. The parties hereto desire to set forth in this Agreement, among
other things, the terms and conditions upon which the Contingent Purchase Price
will accrue and be payable to the CC/USA Shareholders, and certain restrictions
on CC/USA, Dial and the Parent regarding the operation and management of CC/USA
and Dial during the earn-out periods.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements hereinafter set forth, the parties hereby agree
as follows:
ARTICLE I.
DEFINITIONS
-----------
<PAGE>
SECTION 1.1.Definitions. Capitalized terms used herein and
------------
not otherwise defined shall have the meanings ascribed to them in the Merger
Agreement. In addition, the following terms have the meanings specified or
referred to in this Section 1.1 and shall be equally applicable to both the
singular and plural forms.
"Company" collectively refers to CC/USA, together with its wholly-owned
subsidiary, Dial.
"CC/USA Shares" means, collectively, the CC/USA Preferred Shares and
the CC/USA Common Shares.
"CC/USA Shareholders" collectively refers to all of the shareholders of
CC/USA who have tendered their CC/USA Shares pursuant to the Merger Agreement,
and does not include those shareholders who have exercised their appraisal
rights and received consideration other than as provided under the Merger
Agreement.
"CC/USA Common Shares" means all of the shares of common stock of
CC/USA, $.0001 par value, outstanding immediately prior to the effective time of
the Merger.
"CC/USA Preferred Shares" means all of the shares of Series A Preferred
Stock, $.01 par value, of CC/USA outstanding immediately prior to the effective
time of the Merger.
"Prime Rate" means the prime rate of interest as reported in The Wall
Street Journal from time to time.
"Pre-Tax Earnings" means, with respect to CC/USA, CC/USA's income on an
unconsolidated basis with Dial, and, with respect to Dial, Dial's income on an
unconsolidated basis with CC/USA, each as used in preparing the Company's annual
audited consolidated financial statements for a full calendar year or unaudited
consolidated summary financial statements for a partial calendar year, in each
case before deduction for any federal, state or local income taxes, all in
accordance with and as adjusted pursuant to the rules on Exhibit C.
ARTICLE II.
CONTINGENT PAYMENT AMOUNT
-------------------------
SECTION 2.1. Contingent Purchase Price. In further consideration
----------------------------
of their CC/USA Shares, the CC/USA Shareholders are receiving pursuant to the
Merger Agreement the right to receive up to an aggregate additional amount of
SEVENTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($17,500,000) (subject to
certain adjustments pursuant to Sections 2.3 (e) and 2.10) (the "Contingent
Purchase Price") to accrue to the CC/USA Shareholders in the form of CUC Common
Shares based upon CC/USA and/or Dial achieving
2
<PAGE>
certain Financial Targets (as defined herein) in each of the Earn-Out Periods
(as defined herein), all as further provided in Section 2.2 below. The aggregate
number of CUC Common Shares deliverable to the CC/USA Shareholders in payment of
the accrued Contingent Purchase Price (the "Accrued Earn-Out Shares") shall be
calculated and payable as provided in Section 2.3 of this Agreement and shall be
subject to possible holdback and non-issuance as provided in Sections 2.3 and
2.11 of this Agreement.
SECTION 2.2. Accrual of Contingent Purchase Price.
-------------------------------------
(a) Attached hereto as Exhibit A are projected financial results (each
a "Financial Target" and collectively, the "Financial Targets") for each of
CC/USA and Dial, which projections show Pre-Tax Earnings for each company for
each Earn-Out Period (as defined below). Portions of the Contingent Purchase
Price shall accrue to the CC/USA Shareholders contingent upon the achievement by
CC/USA and Dial, individually, of a certain percentage of their respective
Financial Targets for each of the following periods (each, an "Earn-Out
Period"):
Period I January 1, 1996 through December 31, 1996
Period II January 1, 997 through December 31, 1997
Period III January 1, 1998 through December 31, 1998
Period IV January 1, 1999 through December 31, 1999
For purposes of calculating whether a Financial Target has been met,
the respective financial performances of CC/USA and Dial shall be calculated
separately, and not on a consolidated basis. The failure of one company to meet
a Financial Target shall not affect whether the other meets a Financial Target.
(b) The Contingent Purchase Price shall be divided into two baskets,
(i) one basket consisting of $14,500,000 ("Basket I") and (ii) the other basket
consisting of $3,000,000 ("Basket II" and together with Basket I, collectively
referred to as the "Baskets" and individually as a "Basket"). Each Basket will
be subdivided into two sub-baskets, with (i) one sub-basket relating to CC/USA
and being allocated ninety percent (90%) of the total amount of such Basket and
(ii) the other sub-basket relating to Dial and being allocated ten percent (10%)
of the total amount of such Basket.
(c) Each sub-basket of Basket I will be further subdivided into four
separate parts, one for each of the four Earn-Out Periods, which parts will
accrue based on the degree to which CC/USA or Dial, as the case may be, achieve
the corresponding Financial Target. The maximum aggregate amount that can accrue
to the CC/USA Shareholders with respect to each part of each sub-basket of
Basket I for each Earn-Out Period is as follows (each such amount herein
referred to as a "Basket I Maximum Amount"):
(i) CC/USA Basket I Maximum Amounts
3
<PAGE>
Period I - 1,305,000
Period II - 3,915,000
Period III - 3,915,000
Period IV - 3,915,000
(ii) Dial Basket I Maximum Amounts
Period I - 145,000
Period II - 435,000
Period III - 435,000
Period IV - 435,000
Subject to the catch-up provisions of Section 2.2(e) below, each of the
foregoing Basket I Maximum Amounts shall accrue to the CC/USA Shareholders as
follows:
(1) No amount of a Basket I Maximum Amount shall accrue to the
CC/USA Shareholders if CC/USA or Dial, as the case may be, fails to
achieve at least seventy percent (70%) of the applicable Financial
Target corresponding to such Basket I Maximum Amount; and
(2) Seventy percent (70%) of a Basket I Maximum Amount shall
accrue to the CC/USA Shareholders if CC/USA or Dial, as the case may
be, achieves seventy percent (70%) of the applicable Financial Target
corresponding to such Basket I Maximum Amount, and such accrual
percentage of the Basket I Maximum Amount shall increase pro-rata, up
to 100% of the Basket I Maximum Amount, as the percentage of
achievement of the applicable Financial Target increases.
(d) With respect to Basket II, each sub-basket of Basket II will be
further subdivided into four separate parts, one for each Earn-Out Period, which
parts will accrue based on the degree to which CC/USA or Dial, as the case may
be, achieve the Financial Target. The maximum aggregate amount that can accrue
to the CC/USA Shareholders with respect to each part of each sub-basket of
Basket II for each Earn-Out Period is as follows (each such amount herein
referred to as a "Basket II Maximum Amount"):
(i) CC/USA Basket II Maximum Amounts
Period I - $270,000
Period II - $810,000
Period III - $810,000
Period IV - $810,000
(ii) Dial Basket II Maximum Amounts
4
<PAGE>
Period I - $30,000
Period II - $90,000
Period III - $90,000
Period IV - $90,000
Subject to the catch-up provisions of Section 2.2(e) below, each of the
foregoing Basket II Maximum Amounts shall accrue to the CC/USA Shareholders as
follows:
(1) No amount of a Basket II Maximum Amount shall accrue to
the CC/USA Shareholders if CC/USA or Dial, as the case may be, fails to
achieve in excess of one hundred percent (100%) of the applicable
Financial Target corresponding to such Basket II Maximum Amount; and
(2) One hundred percent (100%) of a Basket II Maximum Amount
shall accrue to the CC/USA Shareholders if CC/USA or Dial, as the case
may be, achieves one hundred and twenty percent (120%) of the
applicable Financial Target corresponding to such Basket II Maximum
Amount, and such accrual percentage of the Basket II Maximum Amount
shall decrease pro-rata down to nothing (0%) of the Basket II Maximum
Amount, as the percentage of achievement of the applicable Financial
Target decreases from 120% to 100% (i.e., a 5% decrease in the accrual
percentage of the Basket II Maximum Amount for each 1% drop in the
percentage of achievement of the applicable Financial Target from 120%
to 100%).
(e) Notwithstanding any of the foregoing to the contrary, it is the
parties' intent that the accruals of the Basket I Maximum Amounts and the Basket
II Maximum Amounts be calculated on a cumulative basis, retroactively applied.
Accordingly, to the extent that Pre-Tax Earnings of either CC/USA or Dial, as
the case may be, exceeds 100% of a Financial Target relating to a Basket I
Maximum Amount in any Earn-Out Period, or exceeds 120% of a Financial Target
relating to a Basket II Maximum Amount in any Earn-Out Period (an "Excess
Earnings Amount"), such Excess Earnings Amount shall be credited towards
CC/USA's or Dial's Pre-Tax Earning in any prior Earn-Out Period in which the
full amount of any Basket I Maximum Amount or Basket II Maximum Amount was not
achieved (a "Shortfall"). Excess Earnings Amounts shall be applied to the
earliest occurring Shortfall until such Shortfall is extinguished and then to
the next successive occurring Shortfall, until such Excess Earnings Amounts are
used in full. Any Excess Earnings Amounts shall only be applied to Shortfalls
relating to Earn-Out Periods occurring prior to the Earn-Out Period in which
such Excess Earnings Amount was achieved, and shall not be carried forward.
After applying any Excess Earnings Amounts, the accrued portion of the Basket I
Maximum Amount or Basket II Maximum Amount shall then be recalculated, and the
Parent shall issue additional CUC Common Shares to the CC/USA Shareholders in
payment of any recaptured Shortfall.
5
<PAGE>
(f) Attached as Exhibit B are examples of calculations of the
Accrued Earn-Out Amount.
SECTION 2.3. Calculation and Payment of Contingent Purchase
---------------------------------------------------
Price.
- ------
(a) For purposes of this Agreement, Pre-Tax Earnings shall be
calculated by the Company in accordance with its definition (as provided in
Section 1.1) and the additional rules set forth on Exhibit C, attached hereto.
The Company shall send to the Parent and the CC/USA Shareholders' Representative
by February 10 of each of 1997, 1998, 1999 and 2000 a statement (the "Certified
Annual Statement") showing, in reasonable detail and with sufficient supporting
documentation, the calculation of the accrued portion, if any, of the Contingent
Purchase Price earned by the CC/USA Shareholders during such Earn-Out Period
(the "Accrued Earn-Out Amount"), certified by the Company's Chief Financial
Officer, together with audited financial statements of the Company for the
relevant period and the certificate required by Section 2.11 of this Agreement.
The Certified Annual Statement shall show, among other things, the calculation
of Pre-Tax Earnings for each of CC/USA and Dial to the extent not reflected on
the audited financial statements as a line item.
(b) Subject to Section 2.3(d) and to the Parent's receipt by February
10 of the Certified Annual Statement, the certificate required by Section 2.11,
and the audited financial statements of the Company for the prior fiscal year,
the Parent, prior to March 1, shall issue and deliver to the CC/USA Shareholders
that number of Accrued Earn-Out Shares equal to the Accrued Earn-Out Amount (as
adjusted, if necessary, pursuant to Section 2.12) divided by $12.125 (as
adjusted, if necessary, pursuant to Section 2.8). The Parent shall be obligated
to issue to the CC/USA Shareholders that number of Accrued Earn-Out Shares not
in dispute, with the balance to be heldback and not issued by the Parent pending
resolution of any dispute. If not all of the Accrued Earn-Out Shares are issued
prior to March 1 (other than due to the failure of the Company to deliver to the
Parent by February 10 the Certified Annual Statement and the audited financial
statements of the Company for the prior year), then:
(i) to the extent the price of the CUC Common Shares decreases
between March 1 of such year and the time payment is made, the Parent
shall issue and deliver to the CC/USA Shareholders additional CUC
Common Shares having an aggregate value, based upon the closing price
of a CUC Common Share as reported in the New York Stock Exchange
sections of The Wall Street Journal on the third trading day
immediately prior to the date of issuance, equal to the amount of the
decrease in market value of the number of such Accrued Earn-Out Shares
that are issued on or after March 1; and
(ii) the Parent shall pay to the CC/USA Shareholders any
dividends declared on the CUC Common Shares, payable to holders of
record on or after March 1, which would have been payable on the number
of such Accrued Earn-Out Shares issued on or after March 1 had they
been issued prior to March 1. No fractional shares of CUC Common Shares
will be issued in payment of any CC/USA Shareholder's right to receive
6
<PAGE>
Accrued Earned-Out Shares or other CUC Common Shares, but in lieu of
such fractional shares, the Parent shall make a cash payment therefor
based upon the closing price of a CUC Common Share as reported in the
New York Stock Exchange section of The Wall Street Journal on the
third trading day immediately prior to the date of issuance. The
provisions of this Section 2.3(b) shall apply to the issuance of
additional or heldback CUC Common Shares pursuant to Section 2.3(d)
or (e).
(c) The CC/USA Shareholders' Representative, the Parent and the
Parent's auditors shall have reasonable access to the working papers of the
Company and its auditors for purposes of confirming the accuracy of the
calculations of the Accrued Earn-Out Amount for each Earn-Out Period. The
Company shall engage Ernst & Young to perform its sole independent financial
audit for each of the Earn-Out Periods, and shall direct Ernst & Young to
coordinate their efforts with the Parent's auditors.
(d) In the event that the Parent or the CC/USA Shareholders'
Representative disputes the calculation of the Accrued Earn-Out Amount, it shall
deliver a written notice to the Company at least three (3) business days prior
to the last business day in February, including the reason for such dispute. If
no notice of dispute is received by the Company by such date, the Parent and the
CC/USA Shareholders shall be deemed to have accepted the calculations shown in
the Certified Annual Statement. If the Company, on the one hand, and Parent or
the CC/USA Shareholders' Representative, on the other, fail to resolve any
dispute within 10 days after the day on which the Parent or the CC/USA
Shareholders' Representative gave notice of the dispute, then the dispute shall
be submitted to an accounting firm mutually agreed to by the parties to the
dispute. If the parties to the dispute are unable to agree upon an accounting
firm to resolve the dispute, then the accounting firms of Ernst & Young and the
Parent's auditors shall be instructed to select a third firm (the "Accounting
Firm") and the dispute shall be submitted to such firm. The Company on the one
hand, and the Parent or the CC/USA Shareholders' Representative, on the other,
shall engage the Accounting Firm to resolve the dispute and the Accounting Firm
shall be required to render its decision within 30 days. The decision of the
Accounting Firm shall be final and binding and the calculation on the Certified
Annual Statement shall be adjusted to reflect such decision. The Parent promptly
shall issue to CC/USA Shareholders the appropriate number of additional CUC
Common Shares to the extent the resolution of the dispute(s) supports a
calculation of the Accrued Earn-Out Amount that requires the issuance of
additional Accrued Earn-Out Shares. If resolution of the dispute(s) supports a
calculation of the Accrued Earn-Out Amount that does not require the issuance of
additional Accrued Earn-Out Shares in excess of the number of Accrued Earn-Out
Shares heldback by the Parent pursuant to Section 2.3(b), then the Parent will
have no obligation to issue the heldback CUC Common Shares remaining after the
Parent's compliance with the immediately preceding sentence. If resolution of
the dispute(s) supports a calculation of the Accrued Earn-Out Amount that
reduces the number of Accrued Earn-Out Shares that should have been issued to a
number that is less than the number of CUC Common Shares previously issued as
Accrued Earn-Out Shares by the Parent, then the Parent not only will have no
obligation to issue the heldback CUC Common Shares, but also will be entitled to
reduce the number of Accrued Earn-Out Shares that the Parent may otherwise be
7
<PAGE>
required to issue with respect to the next successive Earn-Out Period in an
amount equal to the number of such excess CUC Common Shares previously issued
plus any CUC Common Shares issued as dividends thereon. The provisions of
Section 2.3(b) shall apply to the issuance of additional or heldback CUC Common
Shares under this Section. The fees and expenses of the Accounting Firm shall
initially be paid by the Company, but the Parent or the CC/USA Shareholders'
Representative, as the case may be, shall reimburse the Company for such fees if
such party disputes the calculation and the Company's calculation is
substantially upheld.
(e) If the Adjusted Consolidated Working Capital, as determined in
accordance with Section 2.8 of the Merger Agreement, is less than the Adjusted
Consolidated Working Capital estimated in the Initial Adjustment Certificate,
then the number of Accrued Earn-Out Shares to be first issued hereunder shall be
reduced by that number of shares as determined pursuant to Section 2.8 of the
Merger Agreement. If Adjusted Consolidated Working Capital has not been finally
determined pursuant to Section 2.8 of the Merger Agreement prior to the date
that Accrued Earned-Out Shares are to be first issued hereunder, then the Parent
shall holdback and not issue such number of Accrued Earned-Out Shares as would
not be issuable if Adjusted Consolidated Working Capital as finalized in
accordance with Section 2.8 of the Merger Agreement was equal to Adjusted
Consolidated Working Capital as calculated by the Parent in accordance with
Section 2.8 of the Merger Agreement. The Parent shall issue the appropriate
number of such heldback Accrued Earned-Out Shares if and to the extent that
Adjusted Consolidated Working Capital as set forth in the Final Adjustment
Certificate, as finalized by the parties or by the Qualified Auditor, is more
than Adjusted Consolidated Working Capital as calculated by the Parent. The
provisions of Section 2.3(b) shall apply to the issuance of such heldback CUC
Common Shares under this Section 2.3(e).
SECTION 2.4. Operating Control During Earn-Out Period.
-----------------------------------------
(a) Subject to the restrictions in this Section 2.4 and subject to any
contrary provision of the GCL, the persons set forth on Exhibit D (each a "Key
Manager" and collectively the "Management Team") shall at all times during the
Earn-Out Periods retain and have full and exclusive operating control and
management authority to direct the businesses of CC/USA and Dial, including the
authority to incur and satisfy all liabilities arising in the ordinary course of
the business of CC/USA or Dial. Notwithstanding the foregoing, the Management
Team shall not take any of the following actions on the behalf of the Company
without Board of Director approval:
(i) issue any securities for capital stock of
CC/USA or Dial or any securities exchangeable for, or creating a
right to purchase any capital stock of CC/USA or Dial;
(ii) assume, incur or guarantee any obligation or liability
for borrowed money from any third-party other than Parent, provided,
however, purchase money financing to obtain additional equipment used
in the business shall be permitted, provided such capital expenditures
are permissible hereunder;
8
<PAGE>
(iii) make any capital expenditures or commit to make any
capital expenditures in excess of the amounts, or for purposes other
than as, set forth in an annual budget that is approved by CC/USA's or
Dial's Board of Directors;
(iv) enter into any transaction with any Key Manager, the
CC/USA Shareholders' Representative, any former officer or director of
CC/USA or Dial, any CC/USA Shareholder, or any affiliate of any of the
foregoing or of CC/USA or Dial;
(v) make any regulatory filing with the FCC or any state
regulatory commission;
(vi) acquire or dispose of a business, division or product
line of the Company, provided that the Board of Directors of CC/USA or
Dial shall not unreasonably withhold their approval of any such
acquisition or disposition;
(vii) enter into any contract, agreement, lease or other
arrangement binding on CC/USA or Dial that has a term that extends
beyond December 31, 2000, or that contains terms or conditions that are
more onerous on CC/USA or Dial during the period after December 31,
1999, than applied to CC/USA or Dial during any Earn-Out Period, or
which otherwise has the effect of shifting operating or financial
burdens or adverse economic effects from any Earn-Out Period to any
other Earn-Out Period or to the period commencing after December 31,
1999; or
(viii) take any action or omit to take any action the direct
or indirect effect of which could shift the financial consequences to
CC/USA or Dial from any Earn-Out Period to any other Earn-Out Period or
to the period following December 31, 1999, or that could impair the
Parent's operation or ownership of the Company after December 31, 1999,
or take any action that is intended to artificially inflate the Pre-Tax
Earnings of CC/USA or Dial for any Earn-Out Period or otherwise to
artifically enhance the Company's ability to meet the Financial
Targets.
(b) Parent shall not require CC/USA or Dial to increase the benefits
payable under or add any employee benefit or welfare plans to match similar
plans currently offered by Parent to its employees. The Parent shall not,
without the written consent of the most senior Key Manager at CC/USA or Dial, as
appropriate, transfer, fire or change the responsibilities, salary, position,
title, or general working conditions of any Key Manager of CC/USA or Dial,
respectively, or cause either CC/USA or Dial to hire other individuals having
any of the current responsibilities of any Key Manager. The Management Team
shall have the right to replace any Key Manager who ceases to be employed by the
Company, and such replacement person shall be deemed a Key Manager for purposes
of this Agreement.
9
<PAGE>
(c) (i) If Pre-Tax Earnings of CC/USA for any Earn-Out Period shall
fall below fifty percent (50%) of the corresponding Financial Target,
the Parent shall have the unrestricted right (A) to replace any or all
of the Key Managers who are employed by CC/USA and assume operating and
management control of CC/USA, (B) to terminate the CC/USA Shareholders'
Contingent Payment Rights to the extent relating to the CC/USA Basket I
Maximum Amounts and the CC/USA Basket II Maximum Amounts, and (C) to
discontinue the operations or to sell (whether by sale of substantially
all of the assets, stock, merger or otherwise) CC/USA (excluding Dial).
(ii) If Pre-Tax Earnings of Dial for any Earn-Out Period shall
fall below fifty percent (50%) of the corresponding Financial Target
(if the Financial Target is a negative amount, then "50% of the
Financial Target" shall be deemed to be 150% of such negative amount),
the Parent shall have the unrestricted right (A) to replace any or all
of the Key Managers who are employed by Dial and who spend a majority
of their time on Dial matters, and assume operating and management
control of Dial, (B) to terminate the CC/USA Shareholders' Contingent
Payment Right to the extent relating to the Dial Basket I Maximum
Amounts and the Dial Basket II Maximum Amounts, and (C) to discontinue
the operations or to sell (whether by sale of substantially all of the
assets, stock, merger or otherwise) Dial.
(iii) The Parent shall exercise these rights (separately or in
combination) within thirty (30) days from the date of its receipt of
the Annual Certified Statement and the Company's audited financial
statements by giving written notice to the most senior Key Manager at
CC/USA or Dial, as appropriate, and the CC/USA Shareholders'
Representative; otherwise, the Contingent Payment Rights shall continue
unaffected, and the Management Team shall remain in place until the
delivery of the Annual Certified Statement and the Company's audited
financial statements for the next Earn-Out Period.
(d) The Parent shall have the further right to remove any or all of the
Management Team at any time in its sole discretion provided that (i)
simultaneously with such removal it shall pay to the CC/USA Shareholders the
balance of the Contingent Purchase Price, including all Shortfalls; and (ii) any
terminated Key Manager shall be entitled to his salary and bonus (not to exceed
the bonus paid to such Key Manager for the immediately preceding year) for the
remainder of the Earn-Out Periods as if he had remained in the employ of the
applicable company for such period.
(e) The Parent shall have the further right to require the Company to
pursue business opportunities related to the services then provided by the
Company that are presented to the Company by the Parent. The Management Team may
be required by the Board of Directors of the Company to pursue and manage such
business opportunities with the same priority and sense of urgency that are
being applied to other comparable business opportunities of the Company. The
Parent shall have the further right to require the Management Team to coordinate
the business activities of the Company with the Parent and its affiliates to the
extent such coordination makes reasonable business sense.
10
<PAGE>
(f) The Parent shall prepare all local, state, federal and foreign tax
returns which either CC/USA or Dial may be required to file, except that the
Company shall retain responsibility for payroll taxes unless the Parent
otherwise specifically requires.
SECTION 2.5. Manipulation.
--------------
(a) Parent shall not take any action with respect to the operation or
ownership of CC/USA or Dial that is intended to artificially reduce or inhibit
the Company's ability to meet the Financial Targets, provided that any action by
the Parent that has been approved in writing by the most senior Key Manager at
CC/USA or Dial, as appropriate, shall be deemed not to be an action that is
intended to artificially reduce or inhibit the Company's ability to meet the
Financial Targets.
(b) The Parent shall not require the Company to pay cash dividends to
it if such payment would adversely affect the ability of the Company to meet its
current liabilities as they become due and payable, provided that
notwithstanding the foregoing, the Parent may require the Company to pay cash
dividends to it in an amount equal to the tax liabilities of the Company to the
extent included in any tax return of the Parent or any affiliate of the Parent
other than the Company.
(c) The Company may require the Parent to advance funds to the Company
in an amount equal to the cash dividends made to the Parent by the Company net
of the portion of such cash dividends that are equal to the Company's tax
liabilities that are included in any tax return of the Parent or any affiliate
of the Parent, provided that such financing may be used solely for the purposes
of making capital expenditures permitted pursuant to Section 2.4(a).
(d) The Parent shall permit the most senior Key Employee of CC/USA or
Dial, or his designee, to attend, at his expense, all meetings of the Board of
Directors of CC/USA or
11
<PAGE>
Dial, and all meetings of any committee established by either such Board of
Directors, that may be held during the period in which the Contingent Payment
Right remains in effect for CC/USA or Dial, respectively.
SECTION 2.6. Sale of CC/USA or DIAL. Except as provided below, and
-----------------------
subject to Section 2.4(c), all or a portion of the unpaid balance of the
Contingent Purchase Price, including any Shortfalls, shall become immediately
due and payable upon the sale (whether by sale of substantially all of the
assets, stock, merger, or otherwise) or the discontinuation of operations of
CC/USA, Dial, or both, as follows:
(a) 90% of the Contingent Purchase Price shall be
payable upon the sale or discontinuation of CC/USA, including any
Shortfalls relating to CC/USA's performance;
(b) 10% of the Contingent Purchase Price shall be
payable upon the sale or discontinuation of Dial, including any
Shortfalls relating to Dial's performance; and
(c) all of the Contingent Purchase Price and any
Shortfalls shall be payable upon the sale or discontinuation of the
Company.
In the event of a discontinuation of operations other than as permitted by
Section 2.4(c), this requirement shall be inapplicable if the decision to
discontinue operations is made or consented to by the most senior Key Manager at
CC/USA or Dial, as the case may be.
SECTION 2.7. Stock Fully Paid; Reservation of Shares. All CUC Common
-----------------------------------------
Shares that may be issued under the Contingent Payment Right will, upon
issuance, be fully paid and nonassessable, and free from Encumbrances (other
than Encumbrances arising pursuant to the Securities Act) with respect to the
issue thereof. During the Earn-Out Periods and for 120 days thereafter, the
Parent will at all times have authorized and reserved for the purpose of
issuance, a sufficient number of CUC Common Shares to provide for the issuance
of Accrued Earn-Out Shares assuming the full realization of the Contingent
Purchase Price.
SECTION 2.8. Certain Adjustments. If the Parent at any time while the
---------------------
Contingent Payment Right remains outstanding subdivides (which term shall not
include payment of a dividend declared payable in shares of CUC Common Stock) or
combines it CUC Common Stock, the dollar figure that is the divisor by which the
Accrued Earn-Out Amount is divided shall be proportionately adjusted. The Parent
shall promptly give notice to the CC/USA Shareholders' Representative upon the
occurrence of any of the foregoing events.
SECTION 2.9. Quarterly Meetings. During the Earn-Out Periods and at
-------------------
the request of the CC/USA Shareholders' Representative, the senior management of
the Company shall meet at Company headquarters with the CC/USA Shareholders'
Representative no more frequently than quarterly to report on the condition
(financial and otherwise) of the Company, and the likelihood of meeting the
Financial Targets for such Earn-Out Period.
12
<PAGE>
SECTION 2.10. Adjustment for Excluded Stock. The Contingent
-------------------------------
Purchase Price shall be reduced by an amount equal to the Contingent Purchase
Price multiplied by the percentage of Excluded Stock (as defined in the Merger
Agreement) as to the total of all of the CC/USA Shares. Further, each of the
Basket I and II Maximum Amounts for each Earn-Out Period shall be
proportionately reduced by the same percentage.
SECTION 2.11. Contingent Liabilities. The Company shall include with
------------------------
each Certified Annual Statement a certificate signed by the Company's Chief
Financial Officer that, to the best of his knowledge after reasonable inquiry,
the Company does not have any liabilities or obligations (absolute, accrued,
contingent or otherwise) which in the aggregate would have an adverse effect on
the financial condition or results of operations of either CC/USA or Dial except
for liabilities and obligations either (a) reflected in the audited financial
statements included with the Certified Annual Statement, (b) incurred in the
ordinary course of business since the date of such financial statements, none of
which, individually, is material in amount or (c) disclosed in such certificate.
With respect to any contingent liability, if the Parent determines that GAAP
requires CC/USA or Dial to establish a reserve for such contingent liability or
to increase an existing reserve for such contingent liability, and the Company
disagrees with the Parent, then the Parent shall have the right to holdback and
not to issue as Accrued Earn-Out Shares the appropriate number of CUC Common
Shares pending resolution of such dispute pursuant to Section 2.3(d). With
respect to any liability reserves of the Company that are outstanding as of
December 31, 1999, whether required pursuant to GAAP or required by the Parent
pursuant to Item 12 on Exhibit C, the Parent shall have the further right to
continue to holdback and not to issue the CUC Common Shares that would have been
issuable as Accrued Earn-Out Shares but for the existence of such reserves. Such
heldback shares shall be issued or the obligation to issue such shares shall be
cancelled from time to time as and to the extent any dispute regarding such
reserves is resolved pursuant to Section 2.3(d) or as and to the extent the
contingent liabilities that are the subject of such reserves are finally
settled.
SECTION 2.12 Adjustment to Accrued Earn-Out Amount. The Accrued
------------------------------------------
Earn-Out Amount for any Earn-Out Period shall be reduced by the aggregate amount
of (i) all extraordinary losses or expenses incurred by the Company, and all
losses or expenses incurred by the Parent or any affiliate of the Parent other
than indirect losses or expenses of the Parent which arise solely as a result of
the Company having incurred losses or expenses, during the relevant Earn-Out
Period arising from events or circumstances that would have been a breach of a
representation, warranty or covenant of the Company in the Merger Agreement if
such representations, warranties and covenants had survived the Closing, and
(ii) all investment banking fees payable as a result of a portion of the
Contingent Purchase Price being earned in such Earn-Out Period.
13
<PAGE>
ARTICLE III.
MISCELLANEOUS PROVISIONS
------------------------
SECTION 3.1. Amendment and Modification. This Agreement may be amended,
---------------------------
modified and supplemented only by written agreement of the parties hereto.
SECTION 3.2. Waiver of Compliance, Consents. Any failure of the
---------------------------------
parties to comply with any obligation, covenant, agreement or condition herein
may be waived in writing by the parties, or by their respective officers or
representatives thereunto duly authorized, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in this
Section 3.2.
SECTION 3.3. Expenses. Except as otherwise provided herein,
---------
each party will pay its own legal and other expenses incurred by it, or on its
behalf, in connection with the negotiation and preparation of this Agreement and
monitoring of the transactions contemplated herein.
SECTION 3.4. Headings. The article and section headings
--------
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
SECTION 3.5. Notices. All notices, requests, demands and other
--------
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been given as follows: on the day established by the
sender as having been delivered personally; on the day delivered by a private
courier as established by the sender by evidence obtained from the courier; or
on the third (3rd) day after the date mailed, by certified or registered mail,
return receipt requested, postage prepaid. Such communications, to be valid,
must be addressed as follows:
(a) If to the Company:
Conference-Call USA, Inc.
855 South Federal Highway
Suite 206
Boca Raton, Florida 33432
Attention: Ken Robertson
with a copy to:
Shefsky Froelich & Devine Ltd.
14
<PAGE>
444 North Michigan Avenue
Chicago, Illinois 60611
Attention: Mitchell D. Goldsmith
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II, Esq.
(b) If to the Parent :
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Attention: Donald P. Weinstein
With a copy to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Attention: L. Russell Mitten, II, Esq.
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W.
Washington, D.C. 20036
Attention: Jeffry L. Hardin, Esq.
(c) If to CC/USA Shareholders' Representative:
c/o Ken Robertson
c/o Conference-Call USA, Inc.
855 South Federal Highway
Suite 206
Boca Raton, Florida 33432
with a copy to:
Shefsky Froelich & Devine Ltd.
444 North Michigan Avenue
Chicago, Illinois 60611
Attention: Mitchell D. Goldsmith
15
<PAGE>
or to such other address or to the attention of person or persons as the
recipient party has specified by prior written notice to the sending party (or
in the case of counsel, to such other readily ascertainable business address as
such counsel may hereafter maintain). If more than one method for sending notice
as set forth above is used, the earliest notice date established as set forth
above shall control.
SECTION 3.6. Assignment.
-----------
This Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any party hereto without the prior
written consent of the other party.
SECTION 3.7. Governing Law. This Agreement shall be governed by
---------------
the law of the State of Delaware as to all matters, including, but not limited
to, matters of validity, construction, effect and performance. The parties agree
that any dispute arising in connection with this Agreement may first be
submitted for good faith resolution by a form of mutually agreed upon
alternative dispute resolution. Should the parties fail to agree upon a form of
alternative dispute resolution or should such form of alternative dispute
resolution not be successful in resolving the dispute, the parties irrevocably
agree that all actions arising directly or indirectly as a result or in
consequence of this Agreement, shall be instituted and litigated only in courts
having situs in the State of Delaware and each of the parties hereby consents to
the exclusive jurisdiction and venue of any such court, and waives any objection
based on forum nonconveniens. Each of the parties hereby waives personal service
of any and all process, and consents that all such service of process may be
made by certified mail, return receipt requested, directed to the party at the
address set forth in Section 3.5 in the manner provided by applicable statute,
law, rule of court or otherwise.
SECTION 3.8. Counterparts. This Agreement may be executed in one or
-------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 3.9. No Third Party Beneficiaries. This Agreement shall not
-----------------------------
confer any rights on any Persons other than the CC/USA Shareholders and the
parties to this Agreement as provided herein.
SECTION 3.10. Severability. In the event that any
------------
particular provision or provisions of this Agreement shall for any reason be
determined to be unenforceable, or in violation of any law, government order or
regulation, such unenforceability or violation shall not affect the remaining
provisions of this Agreement which shall continue in full force and effect and
be binding upon the parties.
SECTION 3.11. Entire Agreement. This Agreement
-------------------
(including the Exhibits attached hereto), the Merger Agreement, each Contingent
Payment Right issued to a CC/USA Shareholder, and the agreements referred to
herein or therein contain the entire agreement
16
<PAGE>
between the parties with respect to the transactions contemplated hereby, and
supersede all written or verbal negotiations, representations, warranties,
commitments, and other understandings prior to the date hereof between the
Parent, CC/USA and the CC/USA Shareholders' Representative. There are no
agreements, covenants, representations or warranties with respect to the
transactions contemplated hereby other than those expressly set forth herein.
SECTION 3.12. CC/USA Shareholders' Representative. As an
--------------------------------------
inducement to the Parent to enter into this Agreement, the CC/USA Shareholders'
Representative represents and warrants to the Parent, as follows:
(a) Organization. The CC/USA Shareholders' Representative is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The CC/USA Shareholders' Representative has full
corporate power and authority to carry on its business as presently conducted.
(b) Authority. The CC/USA Shareholder' Representative has full
corporate power and authority to enter into this Agreement and perform its
obligations hereunder. The execution and delivery of this Agreement by the
CC/USA Shareholders' Representative and its performance hereunder have been duly
authorized by the Board of Directors of the CC/USA Shareholders' Representative
and no further corporate action on the part of the CC/USA Shareholders'
Representative is necessary. This Agreement has been duly executed and delivered
by the CC/USA Shareholders' Representative and constitutes the legal valid and
binding obligation of the CC/USA Shareholders' Representative enforceable
against it in accordance with its terms.
(c) Corporate Documents. Copies of (i) the charter of the CC/USA
Shareholders' Representative, certified by the Secretary of State of Delaware,
(ii) the Bylaws of the CC/USA Shareholders' Representative, certified by its
corporate secretary, and (iii) an incumbency certificate showing the names,
titles and signature specimens of all officers of the CC/USA Shareholders'
Representative, certified by its corporate secretary, have been delivered to
Parent, are true and complete copies of such instruments, as amended to date,
and are in full force and effect on the date hereof.
(d) Other Documents. Copies of all agreements made and executed between
the CC/USA Shareholders' Representative and the CC/USA Shareholders authorizing
the CC/USA Shareholders' Representative to act on behalf of the CC/USA
Shareholders in regard to matters arising under this Agreement have been
delivered to Parent, are true and complete copies of such instruments, as
amended to date, and are in full force and effect on the date hereof.
(e) Reliance by Parent. The CC/USA Shareholders' Representative
acknowledges and agrees that Parent may rely upon these representations and the
authorizations granted in any agreements between the CC/USA Shareholders'
Representative and the CC/USA Shareholders in its performance hereunder and,
except as expressly provided in this Agreement to the contrary,
17
<PAGE>
may deal exclusively with the CC/USA Shareholders' Representative as the sole
representative of all of the CC/USA Shareholders in connection with all matters
arising in this Agreement.
SECTION 3.13 Further Information. From and after the date hereof, the
---------------------
Company will afford the CC/USA Shareholders' Representative and its counsel and
accountants, during normal business hours, reasonable access to the books,
records and other data of the Company in its possession with respect to periods
prior to and during the Earn-Out Periods and the right to make copies and
extracts therefrom, to the extent that such access may be reasonably required by
the CC/USA Shareholders' Representative (i) to facilitate the investigation,
litigation and final disposition of any claims which may have been or may be
made against any party that relate to the Company, and (ii) for any other
reasonable business purpose. Any expenses incurred by the CC/USA Shareholders'
Representative and its counsel and accountants in connection with any such
inspection shall be the sole responsibility of the CC/USA Shareholders'
Representative.
SECTION 3.14 Imputed Interest. To the extent the CC/USA Shareholders
------------------
are required to treat a portion of the Accrued Earn-Out Amount as interest on
the earned portion of the Contingent Purchase Price, a portion of the Accrued
Earn-Out Shares received by each CC/USA Shareholder shall be deemed to be in
payment for the earned portion of the Contingent Purchase Price and the balance
shall be deemed to be in payment of the interest imputed on such earned portion
of the Contingent Purchase Price. For each payment received by the CC/USA
Shareholders, the Company shall notify each CC/USA Shareholder of the number of
shares such CC/USA Shareholder received in payment of imputed interest.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
CITIZENS UTILITIES COMPANY:
By:___________________________________
Name:
Its:
CONFERENCE-CALL USA, INC.
By:___________________________________
Name:
Its:
18
<PAGE>
CC/USA REPRESENTATIVE, INC.
By:___________________________________
Name:
Its:
19
<PAGE>
EXHIBIT A
Financial Targets
-----------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
===================================== ==============================================================================
Conference-Call USA Period
===================================== ------------------ ------------------- ------------------- -------------------
I II III IV
===================================== ------------------ ------------------- ------------------- -------------------
Pre-Tax Earnings 1,930,533 2,884,250 4,326,670 6,268,334
===================================== ------------------ ------------------- ------------------- -------------------
===================================== ==============================================================================
Dial Services, Ltd. Period
===================================== ------------------ ------------------- ------------------- -------------------
I II III IV
===================================== ================== =================== =================== ===================
Pre-Tax Earnings (905,000) (383,885) 56,468 736,107
===================================== ================== =================== =================== ===================
</TABLE>
20
<PAGE>
EXHIBIT C
---------
Earn-Out Rules
--------------
For purposes of calculating Pre-Tax Earnings, the following
adjustments, rules, and agreements shall be followed:
1. Expenses between CC/USA and Dial shall be allocated in accordance
with historic practice and facility rental agreements currently in
place.
2. Financial statements shall be prepared in accordance with GAAP,
consistent with past practice. The cost of the audit shall be a Company
expense, and such expense shall be allocated 90% to CC/USA and 10% to
Dial.
3. Extraordinary gains and losses will not be included in the calculation
of Pre-Tax Earnings.
4. Add back amount of amortization expense of goodwill and other costs
associated with the acquisition of the Company.
5. Add back amount of any other out-of-pocket expenses relating to the
sale of the Company incurred by the Company, including but not limited
to all investment banking fees, legal, accounting, closing costs and
costs of notification of securityholders.
6. Add back amount of any allocated general administrative overhead
expenses of Parent or any other expenses of Parent that may be charged
to the Company and relating to Parent's administration of its
investment in the Company, including consultant expenses and salary for
supervisory personnel of Parent except to the extent approved by a Key
Manager in writing.
7. Add back any severance payment expenses paid to any Key Manager if
such Key Manager was terminated at the direction of Parent.
8. Any debt or equity financing for the Company provided by Parent or an
affiliate of Parent shall be deemed to be third party debt bearing
interest at an annual percentage rate equal to Prime plus one percent
except (a) if such financing was used to pay off or otherwise refinance
a third party debt of the Company, in which case the rate of interest
on such financing shall be the greater of the rate applicable to such
paid off or refinanced third party debt or Prime plus one percent and
(b) if such financing is required by the Company pursuant to Section
2.5(c) of the Contingent Payment Agreement, in which case no interest
shall be deemed to accrue on such financing.
9. The operating results of any business acquired by either CC/USA or Dial
(it being understood that no acquisition may occur without the approval
of the Board of Directors
C-1
<PAGE>
of CC/USA or Dial pursuant to Section 2.4(a)(vi) of the Contingent
Payment Agreement) shall be included in the results of operation;
provided that the funds for the payment of the purchase price of the
acquired business came from the capital expenditure budget of the
Company for the year in which the acquisition agreement was executed
and/or was financed from the pre-tax cash flow of the acquired company.
10. Add back any expense recognition as a result of the exercise of
any non-qualified stock options exercised prior to Closing.
11. Deduct a portion of any revenues generated by customers or business
opportunities directly referred to CC/USA or Dial by Parent or any of
Parent's affiliates (for example, through bill inserts or other direct
solicitation of the customers of Parent or any of its affiliates or
through use of dedicated toll-free lines for purposes of customer
identification), such portion to be equal to the amount obtained by
multiplying such revenues times a fraction, the numerator of which is
the Pre-Tax Earnings of CC/USA or Dial, as appropriate, determined
prior to such deduction, and the denominator of which is the total
revenues of CC/USA or Dial, as appropriate.
12. Notwithstanding anything in the Earn-Out Rules to the contrary,
the size of any liability reserve required by GAAP to be established
by CC/USA or Dial shall be subject to the prior approval of the Parent
and any difference between the Parent and the Management Team
regarding the need for and size of any such reserve shall be deemed to
be a dispute regarding the calculation of the Accrued Earned-Out
Amount to be resolved in accordance with Section 2.3 (d) of the
Contingent Payment Agreement. In addition, for purposes of
calculating Pre-Tax Earnings for the Earn-Out Period that comprises
calendar year 1999, each of CC/USA and Dial shall establish such
liability reserves as the Parent may require in its reasonable
business discretion, whether or not such reserves may also be
required by GAAP, if the Parent has a reasonable basis for believing
that the contingent liability that is the subject of such reserve
will become a "contingent liability" of CC/USA or Dial under GAAP
prior to December 31, 2000. Any difference between the Parent and
the Management Team regarding the reasonableness of the basis for
such belief by Parent or the size of any such required reserve shall be
deemed to be a dispute regarding the calculation of the Accrued Earn-
Out Amount to be resolved in accordance with Section 2.3(d) of the
Contingent Payment Agreement.
13. Add back an amount equal to the result obtained by multiplying (x) the
remainder of the total cash dividends paid by the Company less the
portion of such cash dividends attributable to the tax liabilities of
the Company pursuant to Section 2.5(b) of the Contingent Payment
Agreement and less the portion of such cash dividends that have been
advanced back to the Company pursuant to Section 2.5(c) of the
Contingent Payment Agreement, times (y) an annual percentage rate equal
to Prime minus 2.50 percent.
C-2
<PAGE>
EXHIBIT D
LIST OF KEY MANAGERS
Robert Fraser
Kenneth Robertson
Jeff Koester
Joseph Laschober
Valerie Thomas-Veise
Nick Zeitvogel
Kimberly Beery
Trygve Ivesdal
Manuel Neace
Exhibit No. 5
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Telephone: (212) 858-1000
December 11, 1996
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
Gentlemen:
As special counsel to Citizens Utilities Company, a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933 (the "Act"), of up to 2,832,432 shares of the Company's
Common Stock Series A and/or Series B, par value $.25 per share (the "Common
Stock"), to be sold by certain selling stockholders ("Selling Stockholders")
from time to time in accordance with Rule 415 under the Act, we have examined
the registration statement on Form S-3 (the "Registration Statement") filed
under the Act, including the prospectus which is a part thereof, and such other
documents as we have considered necessary for the purposes of this opinion. Such
shares are issuable pursuant to the Agreement and Plan of Merger dated October
10, 1996 among the Company, Citizens Conference Call Company and Conference-Call
USA, Inc. Based upon such examination, we hereby advise you that:
(1) We are of the opinion that the Company is a
corporation validly organized and duly existing under the laws of the State of
Delaware. We are further of the opinion that shares of Common Stock (the
"Offered Common Stock") heretofore issued and to be issued to the Selling
Stockholders and hereafter sold by the Selling Stockholders in accordance with
the Registration Statement, as amended and supplemented from time to time, if
the steps enumerated in Paragraph (2) hereof shall have been taken, will be
validly issued, fully paid and non-assessable.
(2) The steps which are referred to in the
foregoing Paragraph (1) hereof are:
(a) It shall be determined that the public service
commissions, or other regulatory agencies or bodies, or other
political entities relating to public utilities matters of the
pertinent states shall be without jurisdiction, or shall have
declined to exercise jurisdiction over the issuance and/or
sale of the Offered Common Stock, or shall have issued an
appropriate order approving and authorizing the issuance
and/or sale of the Offered Common Stock and such order shall
be in full force and effect;
(b) An appropriate order of the Federal Energy
Regulatory Commission with respect to the issuance and sale of
the Offered Common Stock to the Selling Stockholders shall be
in full force and effect;
(c) The Offered Common Stock shall have been issued,
delivered and paid for in accordance with the provisions of
the aforesaid Agreement and Plan of Merger.
We are members of the bar of the State of New York. In
rendering the foregoing opinion, we express no opinion as to laws other than the
laws of the State of New York, the Delaware General Corporation Law and the
Federal laws of the United States.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference made to our firm under "Legal
Opinions" in the prospectus constituting part of the Registration Statement. In
giving such consent, we do not hereby admit that we are within the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission.
Very truly yours,
By:/s/Winthrop, Stimson, Putnam & Roberts
--------------------------------------
Exhibit 23.1
Independent Auditor's Consent
-----------------------------
The Board of Directors
Citizens Utilities Company:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
New York, New York
December 17, 1996
